With the cap removed, the Buzzy Eigenlayer blew past $3 billion with a total value locked in

Eigenlayer, Ethereum's Layer 2 protocol that allows staked ether (ETH) to be “re-staked” to secure other blockchains, has seen its total value locked (TVL) nearly double after lifting a cap it initially put in place to protect it temporarily. Since the network is very centralized.

According to data website Defilama, Eigenlayer's TVL on Monday rose from $2.16 billion to $3.84 billion in the 24 hours after the protocol removed it for certain types of tokens. The increase was mainly fueled by stETH, a liquid staking token issued by Lido, and accounted for by $560 million in new deposits.

Eigenlayer introduced its caps last year to prevent any single token from taking control of the network. Rather than issuing its own tokens, the protocol relies on an open marketplace where validators choose which services to secure.

“In a fully decentralized protocol, a single token can dominate the protocol and undermine decentralization,” Eigenlayer explained in a blog post of their original approach. “This programmable trust could lead to the market being overturned by a counterparty … which would have the power to pick AVs winners and losers or engage in other harmful activities.”

The protocol resumed tokenization yesterday with a one-week freeze on capital of 200 Ethereum (ETH)—or about $475,000. However, the group said they hope to eventually remove the caps permanently to “invite organic demand”, introducing new limits to prevent any token or participant, such as an exchange, from holding more than 33% of management control.

Eigenlayer is part of a growing trend of “mutual security” protocols that are putting Ethereum's $34 billion in ETH to work to protect other chains. Users deposit stake ETH or liquid staking tokens in Eigenlayer's smart contracts, allowing them to earn additional rewards for risk exposure. This also provides rapid economic security for new projects without having to install their own authentication and hardware networks.

Vitalik Buterin, the founder of Ethereum, praised the idea, but warned at the same time that some applications could overload the base chain.

“Application-layer projects should be careful not to take steps that risk increasing the ‘scope' of the blockchain consensus, anything other than verifying the rules of the core Ethereum protocol,” he wrote last year. We need to support and help developers find alternative strategies to achieve their security goals.”

But according to its supporters, Eigenlayer strikes a fine balance by remaining blockchain-agnostic. The concept received $50 million in Series A funding last March.

Ethereum's transition to proof-of-stake has led to an explosion of centralized and decentralized services for yielding coins. With its mainnet launch due later this year, the protocol is positioning itself to capitalize on rising demand for shares.

Many investors are now using platforms like Eigenlayer to “re-establish” previously locked tokens by pooling their rewards. But, Buterin said, he also worries about unintended consequences.

For now, tens of millions of dollars continue to flow into iGenlayer every day. The group said they will pay the temporary cap on Friday, February 9, while they continue to explore ways to strike a “reasonable balance between the dual priorities of independence and decentralization.” What happens next is the protocol community.