EigenLayer has gobbled up nearly 1.5% of the total Ethereum token supply

EigenLayer is becoming a black hole for Ether liquidity.

Investors are rushing to deposit their staked Ether after the protocol reopened deposits this week.

The restaking protocol has rocketed to $4 billion in deposits, almost double the value of locked-in investments before its latest deposit resumption.

EigenLayer has been periodically raising its deposit limit as part of its staggered launch, which began in June.

This week’s growth now makes it the sixth-largest DeFi protocol by investor deposits and a mere $142 million from overtaking decentralised exchange giant Uniswap.

EigenLayer’s $4 billion market size comes from the almost 1.8 million Ether amassed by the protocol thus far — about 1.5% of Ethereum’s total circulating supply worth $284 billion.

EigenLayer is the biggest player in the niche restaking market, which is attracting significant interest as DeFi’s latest meta.

Investors are also pouring in on hopes of future rewards in the form of an airdrop.

Early depositors to EigenLayer earn points for restaking on the protocol. Many expect these points will be converted to airdrop rewards if EigenLayer launches a native token.

EigenLayer deposits come in natively-staked Ether and several forms of liquid-staked Ether. The former refers to Ether staked directly on the Ethereum network, while the latter applies to Ether previously locked in several liquid staking protocols such as Lido, Rocket Pool and Swell.

Restaking is an extension of the popular liquid staking market which currently worth $35.3 billion, according to DefiLlama.

Liquid staking emerged as a convenient alternative to staking Ether directly to the Ethereum network. Instead, after depositing your holdings with a liquid staking provider – like Lido or Rocket Pool – you get a token in exchange. This token acts like a receipt of your staking deposit and is pegged to the price of the original-blend Ethereum.

Importantly, this staked version of Ether – also called an LST – can be reused in DeFi to continue earning yield or as collateral to mint stablecoins.

Restaking adds another step to this process. LST holders can stake those deposit tokens in a protocol like EigenLayer and potentially rake in yet more yield.

Restaked Ether provides pooled security that extends Ethereum’s security architecture across more Ethereum apps and even other blockchains.

Liquid staking wars heat up

Jostling for points and potential airdrops on EigenLayer has also triggered competition among the litany of liquid staking protocols on Ethereum.

EigenLayer previously accepted liquid-staked Ether deposits from Lido, Rocket Pool, and Coinbase. But the protocol has expanded this deposit set to include nine others.

Lido’s staked Ether, represented by stETH, is the most popular LST deposit on EigenLayer at 579,062 stETH, worth $1.3 billion — almost a third of the pool — almost as much as the natively restaked ETH in the protocol.

Others like Swell’s swETH and Stader Labs’ ETHx hope to attract deposits using incentives such as boosted EigenLayer points. These two are the largest after Lido in terms of EigenLayer deposits, with $431 million and $206 million, respectively.

A burgeoning related sector is called liquid restaking. Puffer Finance launched with much fanfare earlier this week, joining ether.fi, Kelp DAO, Renzo and Eigenpie. And that may all be just the beginning for a fast-growing sector in DeFi.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.