Markets
Growing craze for re-staking attracts $18 billion in crypto assets as investors seek higher returns
More than $18 billion in cryptocurrencies have flowed into new “re-staking” platforms, attracting investors with the promise of higher returns.
What happened: The popularity of “re-staking” is growing rapidly, with over $18 billion in crypto assets now locked on these platforms. This trend is driven by traders seeking higher returns because Bitcoin (CRYPTO: BTC) approaching unprecedented highs and Ethereum (CRYPTO: ETH) is seeing significant gains this year, Reuters reported.
Seattle-based startup Clean diaper has been at the forefront of this boom. The company, which raised $100 million from Andreessen Horowitz in February, its platform assets grew from less than $400 million to $18.8 billion in just six months.
Founder of EigenLayer, Sreeram Kannanexplained that re-staking builds on the traditional practice of staking in crypto, allowing users to lock up their tokens for validation and earn yields.
“When there is something that has guarantees on guarantees, it’s not ideal, it adds a new element of risk that didn’t exist,” said Adam Morgan McCarthyresearch analyst at a crypto data provider Kaiko.
Re-staking goes even further by allowing users to stake newly created tokens, which represent their staked assets, with different blockchain programs for potentially higher returns.
However, analysts warn that this practice could introduce hidden risks, especially if these new tokens are used as collateral in crypto lending markets. This could lead to destabilization if many users attempted to exit simultaneously.
Despite these concerns, the lure of higher returns continues to attract investors to re-staking platforms. The practice is seen as part of the broader decentralized finance (DeFi) trend, where crypto holders seek to maximize returns without selling their assets.
“For now, we do not see any significant risk of contagion of readjustment problems to traditional financial markets,” said Andrew O’Neilldigital assets analytics manager at S&P Global Ratings.
Why is this important: The rise of re-staking platforms comes amid a broader wave of optimism in cryptocurrency walk. Recently, Ripple CEO Brad Garlinghouse predicts ETF approval for XRP (CRYPTO: XRP), Solana (CRYPTO: GROUND), And Cardano (CRYPTO: ADA), following the success of the Bitcoin and Ethereum ETFs. This has further fueled investor interest in the crypto space.
Additionally, political figures like Robert Kennedy Jr. showed cryptocurrency support, welcoming former President Trump’s commitment and expressing hope for alignment from the Biden administration. This policy support could provide a more favorable regulatory environment for crypto innovations such as re-staking.
The cryptocurrency arm of Standard Chartered, Zodiac Guard, has observed notable institutional interest in staking. However, the risk manager Anoosh Arevshatian expressed caution regarding re-staking, viewing it as a difficult step due to the difficulty of establishing a “paper trail” for asset destinations and reward allocation.
Image via Shutterstock
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
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