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LONDON - More than $18 billion worth of cryptocurrency has moved into a new type of platform which offers investors rewards in exchange for locking up their tokens, in a complex scheme that analysts warn poses a risk for users and the crypto market.
Some staking platforms also give users newly-created cryptocurrencies to represent the cryptocurrencies they have staked. Re-staking enables owners to take those new tokens and stake them again with different blockchain-based programmes and applications in the hope of bigger returns. The appeal for investors is the yield: returns from staking on the Ethereum blockchain are typically in the 3%-5% range but analysts say returns could be higher for re-staking, as investors can earn multiple yields at once.
Kaiko's Morgan McCarthy said the growth of re-staking platforms was fuelled by users seeking such airdrops, calling it"really, really speculative, this free money thing." New re-staking platforms have emerged, including EtherFi, Renzo and Kelp DAO, which re-stake clients' tokens on EigenLayer for them and generate new tokens to represent those re-staked assets. These tokens can be used elsewhere, for example as collateral in borrowing.
The 2022 selloff in crypto markets was exacerbated by high-risk lending, as crypto tokens used as collateral quickly lost their value following the collapse of the Terra and Luna tokens."The risk isn’t in re-staking but rather it’s in the lending protocols. The lending protocols are mispricing risk," he said.
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