EigenLayer Liquidity Restaking Protocols Lose Over $1 Billion in TVL Ahead of Key Update

EigenLayer liquidity restaking protocols lose over $1 billion in TVL ahead of the April 17 slashing update. The upgrade will enforce accountability, boosting the reliability of AVSs depending on Ethereum validators for security. Will EIGEN prices recover after dumping 85% in two weeks?

On EigenLayer, you can reuse your staked ETH on the Ethereum mainnet and earn additional yield by securing other services, called Actively Validated Services (AVSs), such as Ether.fi, Kelp, Renzo, Eigenpie, and more. According to DeFiLlama data, the liquidity restaking (LRT) total value locked (TVL) on Ethereum exceeds $5 billion. This number may increase in the coming months as ETH stakers diversify, seeking to earn even more income, effectively funneling funds into some of the best cryptos to buy in 2025.

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Liquidity Restaking TVL Loses Over $1 Billion In 2 Weeks

However, the recent explosion of EigenLayer TVL may find headwinds.

On April 17, EigenLayer will implement a key update to bring greater accountability to its multi-billion-dollar ecosystem and likely strengthen it.

After years of testing, the restaking platform will activate the slashing feature, stabilizing its ecosystem and improving the reliability of its services, especially for AVSs that demand higher uptime and seamless operations.

Data from IntoTheBlock shows that liquidity restaking TVL is rapidly shrinking, having lost over $2 billion in the two weeks leading up to the April 17 update.

The unstaking queue spiked for many LRT protocols over the last week.

The reason? Eigenlayer slashing takes effect this week, potentially prompting risk-averse stakers to exit

Track Risk Alerts
https://t.co/iq3PJyT5M7 pic.twitter.com/ltuIvztPPQ

— IntoTheBlock (@intotheblock) April 14, 2025

At press time, DeFiLlama data indicates that the sector commands a TVL of $6.8 billion, down from the $8 billion recorded on April 1.

In the last two weeks, major LRT protocols have seen a sharp spike in unstaking requests. Reflecting this trend, the TVL of Kelp, Renzo, Inception, and Mello LRT, for example, has dropped by double digits in the past month. Ether.fi, the largest LRT, has seen its TVL decrease by 8% in one month to around $4.2 billion.

According to IntoTheBlock analysts, the decision to unstake before the slashing update is a strategy to cushion against potential capital loss.

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Why Slashing On EigenLayer Is Good

Once EigenLayer activates slashing, it will enforce accountability across its Ethereum-based security network. As a result, operators who underperform or misbehave will be penalized. While this may seem harsh from the stakers’ perspective, the goal is to enhance the restaking platform’s reliability and integrity.

Slashing will be executed via AVS smart contracts. For example, all penalties charged on downtime, double signing, or failure to validate will be imposed automatically.

The good news is that penalties will vary depending on the severity of the violation. Depending on the harm caused to the ecosystem, they may range from partial burns of staked amounts to redistribution of the affected stake.

1/ Introducing Slashing – Testnet Launch

Slashing Testnet is officially live.

This proposed protocol upgrade (ELIP-002) introduces slashing, a critical tool for AVSs to enforce cryptoeconomic commitments. pic.twitter.com/u9wzInoeEG

— EigenLayer (@eigenlayer) December 20, 2024

However, to prevent systemic slashing shocks, EigenLayer will implement a unique stake system. Instead of pooling all stakes into one risk pool, operators will allocate a specific amount to individual AVSs. This way, any event will unlikely lead to contagion, making the platform more robust through diversification.

Attn. Operators!

Slashing hits mainnet April 17

Here are 3 things every Operator needs to know:

You can’t be slashed unless you explicitly opt into Operator Sets created by AVSs.
You can designate a unique stake for each AVS you support.
You can align with AVSs… pic.twitter.com/RvumfG5tZ9

— EigenLayer (@eigenlayer) April 8, 2025

Additionally, there is an option to participate in an AVS that enforces penalties. Each AVS must clearly define slashing terms in its smart contract for transparency and risk reduction before funds are committed.

Will EIGEN Prices Recover After The 85% Plunge?

As LRTs unstake, EIGEN remains under pressure, trailing some of the best Solana meme coins to buy in 2025. After spiking to over $5.5 in December 2024, the token has been plunging, losing over 85% in four months.

(EIGENUSDT)

Depending on the reception of the slashing update, EIGEN may find relief and bounce higher or drop to new 2025 lows in a bear-trending continuation formation.

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