The emerging Ether restaking protocols promising double-digit passive returns have sparked significant economic sustainability and security concerns.
The primary risk surrounding Ether restaking isn’t technical complexity but rather investor misunderstanding, according to Jeff Owens, co-founder and CEO of Haven1.
Owens highlighted the risks of asset looping in restaking protocols in a conversation with Cointelegraph.
He stated, “I hope people start to learn that the more you loop your assets, the more risk you’re at.
“That means that all it takes is one of those layers to pull out or not to contribute the rewards, and you can have that waterfall effect that comes down with it.”
Asset looping involves using the same capital across multiple protocols due to liquid staking, which provides a copy of the underlying Ether token that can be redeployed in other DeFi protocols.
Haven1, an Ethereum Virtual Machine-compatible layer-1 blockchain, recently introduced its liquid staking token, hsETH.
Owens emphasized that while restaking is a “robust financial tool,” investors must understand the number of loops involved.
Liquid staking has become a leading protocol category for crypto investors because it allows for greater capital efficiency compared to regular staking protocols, which do not permit the redeployment of staked assets.
Currently, liquid staking holds a combined total value locked (TVL) of over $51.1 billion, surpassing the lending market’s $32 billion in cumulative TVL, as per DefiLlama.
Despite the robust nature of Ether restaking, Owens cautioned that investors need to grasp the implications of the number of loops they add to their assets.
“There’s always this concern that people are given these very robust financial tools within crypto and don’t necessarily understand the implications… So for us, the ethos of Haven1 ultimately is to avoid a lot of those [risks],” he noted.
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Haven1’s new restaking portal offers investors a yield of up to 25.24% annual percentage rate (APR) in addition to the current 3.24% Ether restaking APR.
This high yield caused some concerns, reminiscent of the 20% yield offered by Anchor Protocol on TerraUSD (UST) before Terra’s collapse in May 2022.
However, Owens assured that hsETH’s 25% yield is a “pre-mainnet incentive mechanism” from Haven1, designed to adjust over time based on supply and demand.
He explained, “The APR is not meant to be sustainable for Haven1, and it’s purely an incentive mechanism to bring the community in early on in the testnet.
The actual mechanism of this is just Ethereum liquid staking.”
To enhance safety in its restaking ecosystem, Haven1 has established a reserve fund composed of 10% of all application fees earned through the network, according to Owens.
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