Sebastian Higgs, co-founder and COO of enterprise-grade self-custody software provider Cordial Systems, expressed concerns about the current state of the crypto market in a recent interview.
Higgs believes that the focus on ETFs launched by traditional financial (TradFi) institutions is wrong and that the overall operating conditions of the crypto market need to improve.
Higgs referenced the collapse of FTX, which played a major role in starting the latest cryptocurrency winter. “There are a number of factors that could contribute to the market recovery,” he said. While many people emphasize the importance of increased regulation, transparency and oversight processes, Higgs believes this approach can be a bit isolating.
“Restaking Protocols Create Systemic Risk”
“There is a visible shift in market structure and a growing separation between trading centers and asset custody,” Higgs said. However, Higgs also noted that there are some gaps in predicting what improvement actually entails. Criticizing the approach of simply copying the traditional financial system, Higgs said that this approach ignores a significant development potential.
Like many other analysts, Higgs warned that the recent rise of restaking platforms for tokens like Ethereum (ETH) has introduced one of the worst aspects of TradFi, rehypothecation, into the crypto market, which he thinks will have a negative impact over time.
Restaking allows previously staked assets to be staked again on a different platform or program, increasing the asset's utility and reward potential. This process enables previously staked assets to be used by other decentralized protocols, providing additional reward opportunities to both validators and stakers. Popular restaking platforms include Eigenlayer, Ether.fi and Renzo.
“My view on liquid restaking, shared by many other institutions, is that it presents a real combination of risk, both financial and technical,” Higgs said. “It's words I never thought I'd say, and it shows how crazy the market can be in its search for innovation.”
*This is not investment advice.