Restaking protocols continue their rise despite risk concerns

Liquid restaking tokens (LRTs) have grown tremendously since the recent bull market kicked off, rising to $9.754 billion on Monday. While protocols like Renzo and Etherfi are spearheading LRTs' rise, some crypto community members have raised concerns about the risks involved in liquid restaking.

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LRTs spearhead DeFi’s rise

The DeFi market has risen rapidly following the rally sparked by the Bitcoin ETF approval in January. Total value locked across the DeFi market grew from $56.2 billion at the beginning of the year to $102.1 billion on Monday, according to data from DeFiLlama. While decentralized exchanges and lending protocols were largely responsible for previous DeFi booms, liquid restaking protocols led the charge this time. Liquid restaking protocols have seen more than a 3,360% increase, soaring from $281.39 million to $9.75 billion on April 8.

Pioneered by ETH middleware project Eigenlayer, liquid restaking protocols allow users to earn higher yields and extend security to other platforms by restaking their staked ETH tokens on other protocols. In exchange for restaking their staked tokens, users receive a liquid restaking token (LRT) representing their equivalent amount of staked ETH on a protocol.

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Renzo hits a new all-time high in TVL

Renzo was the fastest-growing liquid restaking protocol in the past month, with a 204% growth that saw its TVL reaching $2.9 billion, according to data from DeFiLlama. This growth comes on the back of partnerships with several chains that have integrated Renzo pools into their platform.

For example, Renzo recently integrated with Layer 2s like Blast and Base. And data from DeFiLlama reveals it's currently the only multi-chain liquid restaking protocol, spanning seven chains. Proposals on the Aave governance forum also indicate that Renzo may soon go live on the number one lending protocol.

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EtherFi also recorded impressive growth in the past month with a 64% growth that saw its TVL reach $3.8 billion. Apart from the high yields these restaking protocols offer, anticipations about a potential airdrop are also driving their rise. Considering the Etherfi airdrop in March, many users anticipate a potential airdrop from these restaking protocols in the coming months.

However, Coinbase analysts have raised concerns about the potential risks in restaking protocols and how they can amplify risk exposure for users.