S&P Global: Ethereum Restaking Can Give Birth to ‘Internet Bond’ Market, Will SEC Approve?

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As a seasoned crypto investor with a deep understanding of the Ethereum network, I find S&P Global Ratings’ report on the rising prominence of Ethereum restaking services both intriguing and promising. The ability to earn additional yield by staking ETH coins aligns closely with traditional bond markets, providing compounding returns and eliminating the need for new validators to create their own tokens.

S&P Global Ratings has released a report indicating that the popularity of Ethereum staking services, which provide extra returns, is on the rise and may eventually foster a robust “digital bond” marketplace in the future.

Just like in the bond market where investors earn extra income by lending out their securities for use in transaction verification processes, Ethereum holders can generate additional yields by either delegating or staking their ETH coins to aid in validating transactions on the Ethereum blockchain. Similar to reinvesting the interest earned from lending in the fixed-income market, Ethereum stakers can re-stake their rewards and enjoy compounded returns. Notable Ethereum restaking platforms, like EigenLayer, have gained significant attention lately and even made headlines by launching on major crypto exchanges such as Coinbase.

The Rise of Ethereum Restaking

As a researcher at S&P Global, I recently emphasized the significance of re-staking in my report published on Wednesday. Re-staking refers to the process of reinvesting earned staking rewards back into the same cryptocurrency network to increase yields and potentially contribute to stronger economic growth within the crypto market.

I myself have pointed out that Ethereum node operators can assess new services through the process of restaking, which involves utilizing established tokens instead of requiring these services to create their own validators with illiquid and volatile tokens. This approach streamlines the validation process for both parties involved.

Currently, a limited number of Ethereum staking services are in operation and are frequently referred to as “actively validated services.” According to a recent report by S&P Global, over 5.3 million Ether worth approximately $19 million has been staked on the EigenLayer platform. In the meantime, EigenLayer initiated Phase 2 claims for their EIGEN airdrop earlier this week.

Risks Associated with Restaking

The risks involved when restaking are mainly related to operations and unique to each actively validated service (AVS). However, financial risks may also surface as a result of market volatility and speculation.

In simpler terms, O’Neill explains that there’s currently little concern about potential financial risks to ecosystems since staking and restaking processes are typically non-custodial and don’t involve rehypothecation of collateral. However, it’s important to keep an eye on the effect of restaking on overall leverage, specifically through borrowing and leverage indicators in decentralized finance (DeFi) lending platforms.

As a researcher studying the blockchain industry, I’ve noticed an exciting development: since the launch of EigenLayer in April, the protocol has experienced remarkable growth and garnered significant attention. This trend could potentially encourage other market participants to introduce staking services as well.

Yet, the primary concern remains if the US Securities and Exchange Commission (SEC) would approve an increase in the usage of restaking protocols in the financial markets. Additionally, there is uncertainty over whether the SEC will permit restaking protocols to evolve into a “decentralized bond market” without implementing adequate regulations.

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2024-06-21 09:42