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DeFi Ponzi Schemes: Analyst’s Take on 2024 Restaking Industry & EigenLayer Airdrop

2 mins
Updated by Ryan James
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In Brief

  • Despite the rise in restaking, crypto analyst Miles Deutscher predicts that the 2024 DeFi Ponzi narratives won't reoccur.
  • Restaking projects like ether.fi and KelpDAO offer yield stacking but it is not known how sustainable those projects are.
  • The US Justice Department last year charged DeFi project founders with running Ponzi schemes and warned future criminals.
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Crypto analyst Miles Deutscher expects the 2024 decentralized finance Ponzi narratives won’t reoccur despite the rise of the restaking industry. He adds, however, that the EigenLayer airdrop, which is the largest drop In 2024, may cause the yield-hunting frenzy of previous DeFi Ponzi schemes.

Aside from the restaking narrative, Deutscher is betting on artificial intelligence, BRC-20, real-world asset tokenization, gaming NFTs, and decentralized infrastructure projects as the most lucrative narratives to watch.

EigenLayer Pulls $2B in Restaking Volume

Deutscher said projects like EigenLayer encourage crypto staking on multiple blockchains, making staking coins more capital-efficient. The user can secure multiple blockchains at once and receive rewards from all. For example, staked Ethereum on liquidity platforms like Lido can be restaked on restaking apps on EigenLayer, allowing what Deutscher calls yield-stacking.

Read more: What Is Liquid Staking in Crypto?

However, projects like EigenLayer, based on the explanation of tokenomics, seem like Ponzi schemes at face value, Deutscher said. Their sustainability is also up for debate.

“I see restaking as the next version of the DeFi Ponzis…The re-staking narrative in my opinion is very reminiscent of the 2021 DeFi Ponzi protocols. When people take on more risk, they searching for yield, they’re hungry for opportunity on chain, and that is what really saw the DeFi Ponzi Mania of 2021[and] 2022.”

Read more: Yield Farming vs. Staking: Which One Is Better?

defi ponzi restaking
EigenLayer TVL | Source: DeFi Llama

Critics have pointed out that DeFi investors chase yields before getting paid. Nonetheless, restaking platforms have already accrued $2 billion since their launch.

Popular apps include KelpDAO, ether.fi, and Renzo on EigenLayer. On their own, these three projects have so far attracted $800 million.

DeFi Crypto Crime Caused Ponzi Label

Forbes likened DeFi staking to a Ponzi scheme in 2022. Forbes observed that the project is only sustainable when more investors drive up the price of the staking token.

“Because the majority of participants are also staking, the staking rewards amount to token inflation, which drives the price down. [Therefore] the ecosystem must experience a significant increase in new investors to offset the increasing supply. Because it relies on new investors to maintain its value, it is similar to other Ponzi schemes.”

Last year, the US Commodity Futures Trading Commission slammed Opyn, ZeroEx, and Deridex for illegal transactions. At the time, the agency criticized using advanced technology to conceal crypto crime. The agency has called for stricter rules around DeFi.

“Somewhere along the way, DeFi operators got the idea that unlawful transactions become lawful when facilitated by smart contracts.”

The US Justice Department charged the founders of DeFi project Forsage for a $340 million Ponzi scheme in 2023. Friend.tech, the Web3 social media platform, has also attracted criticisms for its resemblance to a pyramid scheme.

BeInCrypto has contacted Miles Deutscher for comment but has yet to hear back.

Top crypto projects in the US | May 2024

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...
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