Analysts concerned about hidden risks in system
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.
Blockchains are a kind of database, which involve many computers in a network checking and confirming who owns which cryptocurrencies. To do this, owners of crypto tokens, such as ether, allow their assets to be locked up as part of the validation process. Holders lose instant access to their tokens for as long as they participate in staking but they earn a yield in return.
“When there’s anything that has collateral on collateral it’s not ideal, it adds a new element of risk that wasn’t there,” said Adam Morgan McCarthy, research analyst at crypto data provider Kaiko. For now EigenLayer has been giving out its own newly-created token to people who use the platform. Users hope this token called, “EIGEN”, will be worth something in future.
EigenLayer describes itself as a marketplace for validation services, connecting would-be stakers with applications which need staked tokens. Coinbase’s Duong says re-staking could come with “hidden risks” - if re-staking tokens are used in crypto lending there could be forced liquidations and more volatility during market downturns, he wrote in a note.
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