By mid-2024, restaking had accumulated over $20 billion in deposits — a staggering amount of capital exposed to a novel, largely untested mechanism. The enthusiasm was understandable: restaking offered higher yields on ETH with seemingly minimal additional effort. But the risks were genuinely systemic, and the ecosystem was growing faster than the risk frameworks needed to manage it.
The primary risk is cascading slashing. If a staker’s ETH is simultaneously securing Ethereum and three EigenLayer AVSs, a slashing event on any one of them reduces the security available to all the others. In a stress scenario, this could trigger a chain reaction: one AVS slashes, reducing the restaked amount, which weakens security for other AVSs, which may trigger further slashing or withdrawals, which reduces security further. The theory is well-understood. The practice has never been tested.
Smart contract risk compounds at each layer. A user holding eETH from ether.fi is exposed to: Ethereum staking contracts, EigenLayer contracts, ether.fi contracts, the AVS operator contracts, and whatever DeFi protocol they deposit eETH into. Five or six layers of smart contract risk means the probability of at least one failure is meaningfully higher than for any single protocol. The DeFi composability that makes restaking attractive also makes it fragile.
The bear case scenario — which hasn’t happened but is plausible — involves a major AVS exploit or slashing event that triggers large-scale withdrawals from EigenLayer, which causes LRT tokens to depeg, which triggers liquidations on lending protocols that accepted LRTs as collateral, which cascades through the broader DeFi ecosystem. This is the kind of systemic risk that looks manageable when markets are calm and catastrophic when they’re not. The restaking ecosystem needs a real stress test to prove its resilience, and everyone involved is hoping that test comes gently rather than suddenly.
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