Crypto analyst Miles Deutscher believes that despite the rise of the restaking industry, decentralized finance Ponzi narratives will not reemerge in 2024. However, he adds that the biggest event of 2024, the EigenLayer airdrop, could lead to a frenzy of yield hunting similar to previous DeFi Ponzi schemes. Deutscher thinks that alongside the restaking narrative, artificial intelligence, BRC-20, GameFi, and decentralized infrastructure projects are the most profitable areas to keep an eye on.
Prominent Figure Makes Striking Statements
Deutscher states that projects like EigenLayer encourage staking crypto assets across multiple blockchain networks, making the staked assets more productive. Investors can operate on several blockchain networks at the same time and receive rewards from all of them. For instance, Ethereum staked on liquidity platforms like Lido can be restaked in EigenLayer’s restaking applications, which allows for what Deutscher calls yield enhancement. However, Deutscher mentions that projects like EigenLayer, based on tokenomics explanations, appear to be Ponzi schemes on the surface. Their sustainability is also debatable:
“I see restaking as the next version of DeFi Ponzis. The restaking space reminds me a lot of the 2021 DeFi Ponzi protocols. People look for yield when they take more risks, reaching for chain-linked opportunities, but this was also the main cause of the 2021 to 2022 DeFi Ponzi Craze.”
Critics have pointed out that DeFi investors chase yield before receiving payment. Nevertheless, since their launch, restaking platforms have reached a total value locked (TVL) of 2 billion dollars. Popular applications include KelpDAO, ether fi, and Renzo, which are part of EigenLayer. These three projects have attracted an investment of 800 million dollars on their own so far.
Ponzi Scheme and the Crypto Sector
Forbes compared DeFi staking to a Ponzi scheme in 2022. Forbes noted that the project is sustainable only when more investors drive up the staking token price:
“Since the majority of participants are also staking, the staking rewards mean token inflation, which lowers the price. The ecosystem must experience a significant increase in new investors to balance the increased supply. It resembles other Ponzi schemes because it needs new investors to maintain its value.”
Last year, the U.S. Commodity Futures Trading Commission criticized Opyn, ZeroEx, and Deridex for illegal transactions. At that time, the agency criticized the use of advanced technology to conceal crimes in the crypto sector. The agency called for stricter regulations on DeFi:
“DeFi operators have fallen into the idea that illegal transactions become legal when facilitated by smart contracts along the way.”
The U.S. Department of Justice charged the founders of the DeFi project Forsage in 2023 with running a 340 million dollar Ponzi scheme. The Web3 social media platform Friend tech was also criticized for its resemblance to a pyramid scheme.