Reinventing is growing like crazy… but it can crash and burn.

Risk management is rarely included in a crypto entrepreneur's starter kit. Especially as the markets expand and crypto entrepreneurs scramble to find users and TVLs, they prioritize innovative technology and aggressive marketing over sustainability.

But it's the company's risk appetite that will determine whether it will prosper after the bull run, or whether it will be one of those failures that send the industry into the next bear market.

Suppliers in the current recovery space are at this inflection point.

Startups are pouring in real user funds. The total value locked in liquidation recovery protocols was $15 billion in June, down from $300 million a few months earlier. Ether.fi, the largest liquidity protocol, has over $5 billion in TVL across Ethereum and Arbitrum.

The place is growing like crazy. However, only a small fraction of the total ETH is involved, so it's a market built on weak fundamentals. And without proper risk assessment, startups can crash and burn, along with their users and the industry as a whole.

Chasing the rewards of running again

While staking is the process by which users secure the blockchain by locking or lending their digital assets in exchange for a reward, restaking is simply the re-hoarding of those digital assets.

Redistribution allows digital assets held in exchange for other rewards to be allocated to additional decentralized applications. Rebalancing allows blockchains, applications or services to accumulate the capital necessary to sustain the community and their systems, without the community needing new capital reserves – instead, they use the crypto they already have.

Moving digital assets to get the best rewards is known as commodity farming or liquid mining. This new wave of excitement over productivity breeding restoration protocols started on EigenLayer's mainnet in April. EigenLayer allows users to withdraw ETH and ERC-20s to so-called enabled authentication services (AVSs) such as scrolls, oracles, and other applications. In turn, users are rewarded with Liquid Re-Staking Tokens (LRTs) that can be used to get more production. While these points are not designed to have value per se, users believe they will be associated with future airdrops and have begun speculating on them.

Since then, the ecosystem of recovery providers and services has ballooned rapidly.

Liquidity redeployment providers like Ether.Fi, Puffer Finance, Renzo and Mellow remove the technical hurdles of redeployment, depositing users' assets from a slick user interface. These providers are competing fiercely to attract more liquidity to achieve higher Total Value Locked (TVL) levels.

There is a resurgent war. And his tool of choice: more sophisticated marketing plans that offer eye-popping rewards.

Earlier this year, Ether.fi and Puffer ran a campaign to issue additional rewards – in the form of LRTs and points – to users who spent their assets on the platform. And Pendle says on its home page, “Hop on the Dot Express!” He completely updated to a speculative disappointment. And offers 100x points.

The battlefield is a cash cow for crypto users.

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A time-tested tool

However, this marketing strategy – the promise of huge token rewards or future token airdrops – is reckless and unsustainable.

If history is our guide, these hypes can't last, and what's even more troubling is that the realization only caught on after a major crash, leaving many consumers with bags that have completely turned into a metaphor.

In the year From the ICO boom of 2018 to the initial introduction of commodity farming in 2020, crypto users have been crazy about the economic game that makes their tokens work for the highest potential upside. These recycling protocols allow users to squeeze rewards that benefit more from their digital assets and the infrastructure they're built on.

The biggest concern in the resale market is the quality of the Active Verified Services (AVSs) that these platforms are diverting user funds to. To lure more users, relaunch providers are encouraged to offer more AVS and accept risky services because of the high rewards they offer. But if AVS violates blockchain rules and gets penalized, held user tokens can be confiscated – in crypto this is called sshing.

At the moment, the method of cutting has not yet been released, so the industry is only concerned with how the punishment of one supplier will affect all those connected to others.

At this point, the crypto industry needs to refocus on risk management as resellers weigh the incentive of onboarding new users against the effort required to perform due diligence on their AVS partners.

Another concern with all these storage and retrieval systems built on top of them is the failure of the abduction chain reaction. If even one of these providers was hacked, billions of dollars could evaporate not only from those services, but from the Ethereum network at large. In addition to financial implications, hacking also damages user trust. To provide economic security for a large spectrum of applications, the general concept of regeneration can be questioned.

Competition builds quality.

Relaunch wars can wreak havoc on the entire industry by prompting consumers to flood the market with money. But it doesn't have to be like this. Competition is healthy when the race to build innovative products is pitted against the race to protect those products from harm.

As long as companies develop ways to mitigate these risks — while working to meet the expectations of consumers who sometimes throw money behind new, untested products — the industry should be stronger as a result of this competition.

Take, for example, the heated competition between EigenLayer and Symbiotic. Shortly after Symbiotic announced that it would offer Bitcoin recovery services, EigenLayer expanded its offerings to ERC-20s to meet the demand for more token options.

Competitive, innovative technology drives the industry forward. But that's not all – startups are also encouraged to develop better UX and UI to interact with the new technology, which will keep more users engaged. And more users build a stronger ecosystem.

It allows unlicensed clip mechanics to build interesting products with the help of a decentralized community and the community in turn being rewarded. As long as risk management is part of the equation, a healthy restoration ecosystem provides real value.

Amadeo Brands is the CEO and co-founder of YieldNest, a recycling asset management layer.

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