Re-staking platform EigenLayer “flips” Aave in TVL 

Re-staking protocol EigenLayer has surpassed decentralized finance protocol Aave in terms of total value locked (TVL), making it the second-largest protocol in TVL rankings. EigenLayer achieved this milestone after temporarily removing deposit caps on its network. As of the time of writing, EigenLayer has a TVL of $11.24 billion, while Aave’s TVL stands at $10.7 billion, according to data from DeFiLlama.

This development has sparked discussions among commentators regarding the inclusion of staking or liquid staking in a protocol’s TVL. Typically, TVL in a DeFi protocol like Aave includes the total amount of tokens deposited into a smart contract as collateral for borrowing and earning yield. However, borrowed coins are usually not counted in TVL to avoid inflating the figures.

In contrast, EigenLayer allows users to secure the network and earn additional rewards by depositing native staked ETH or liquid staked ETH into the network’s smart contracts, subjecting them to slashing conditions. Some experts suggest that TVL calculations should consider the distinction between native assets such as ETH, and synthetic versions like wrapped ETH or staked ETH, to prevent counting the same token multiple times and inflating the TVL figures.

Carlos Mercado, a data scientist at Flipside, explains that TVL is intended to measure economic participation and adjustments need to be made to avoid double counting. Similarly, EigenLayer’s TVL could be considered triple counting if depositing stETH or cbETH is taken into account, as EigenLayer is itself a restaking protocol.

Research analyst Ren Yu Kong from Blockworks suggests that TVL has traditionally been used as a metric to gauge the total assets within a smart contract. Therefore, staking contracts with withdrawal credentials pointing towards EigenLayer’s contracts could be considered as a version of smart contracts, justifying the inclusion of EigenLayer’s TVL in the broader sense.

The discussion around TVL calculations and the rise of EigenLayer highlights the ongoing evolution of decentralized finance protocols and the need for continued refinement in measuring their economic activity accurately.