🧞The future of Restaking - with Autolayer

Possible future of the Restaking

Aug 26, 2024

Gm and happy Monday frens🖖

The LRT scene has exploded over the last 6 months, accumulating a total of 3,847,708 ETH ($9.5B) as TVL. As we navigate these challenging times, many initial airdrops have already concluded, with communities sometimes seeking more.

What’s next?

In today's newsletter you will learn:

🌏 You must (!!!!) visits these Singapore events
📦 3 ideas on the future of Restaking
📰 Neeeeeews

🇸🇬 Epic Web3 is coming to Token2049!

We wanted to share more details about upcoming Singapore events:

💠 Modular & L2 Day (co-organized by TAC & by Nubit) | Sept 17th

If you're into modular design, modular blockchain stacks, and layer 2 scaling solutions.

Come to listen to speakers from:

NEAR / Nuffle Labs
Manta
Movement
ZKM / Metis
Nubit
TAC
Fluent

And more...

🔁 Restaking & Infra Day | Sept 18th

For liquid Restaking and staking, Oracles and other AVSs, and security and risks of Restaking fans.

We have speakers from EigenLayer, Exocore, Nubit, Ether.fi & Yala coming!

🥮 BTC Scaling Day (co-organised by Nubit) | Sept 19th

If you fancy wBTC and alternative interoperability solutions, BTCfi and Restaking on BTC, future developments and perspectives of BTC.

Can't spill the beans on all the speakers yet, but there going be someone from Nubit, GOAT Network, Merlin & Mezo.

Get a free ticket

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🤿 Deep-dive: Possible future of the Restaking

AutoLayer is the multi-chain hub for Liquid Restaking, Yields, & LRT Airdrops. With it users can restake with any token seamlessly in a single transaction.

Javi Blanco Thomas, CEO of AutoLayer has shared his insights on Restaking problems and how we can solve them. Watch full presentation here.

How to make Restaking & LRTs economy more effective?

An Efficient Time-Based Economy

AVSs are basically SaaS where consumption of Ethereum's security is based on value and time. All AVSs should construct their incentive models based on a time-based framework, aiming for granularity; the more granular, the more capital-efficient they will be. Some harmonization of the time system used might be interesting too. The same rule applies for LRT issuers - their incentives should be based on granular, harmonized time units.

Max Cap for AVSs

Despite EigenLayer AVSs' unique design that allows liquidity to support many AVSs at a time, optimizing capital efficiency will be crucial in this space. Limiting liquidity to necessary levels prevents incentive dilution and enhances capital efficiency. Many AVSs may introduce inflationary tokens, necessitating initial efficiency for long-term sustainability.

Custom/Protocol-Driven LRTs

Protocol-driven LRTs could revolutionize DeFi by integrating multiple AVSs into tailored products. These LRTs could also serve as collateral on protocols like derivatives platforms, compounding interest harmoniously across platforms.

Risk Management

Risk Management

Effective risk management is vital for LRTs and Restaking products, as they represent over 15% of the DeFi market, creating what can be considered systemic risk for DeFi.

Basically, we have three main pain points: slashing events, contract failures, and LRT rehypothecation.

How do we solve them?

With AVS Scoring, of course

Professional Operators TVL

Sudden changes in these risk scores can help users stay informed. This metric gauges the involvement of institutional and professional operators (such as P2P, Ankr, Nethermind, etc.) in an AVS by assessing the amount they have staked on it. This generates a risk profile based on factual data from funds deposited by professionals, rather than subjective opinions.

Community TVL

AVSs might be the biggest question mark in today’s crypto cycle, as they will drive yields during this time. How well or how poorly they behave will shape the future of the DeFi industry. This is why auditing AVSs will be important.

Or LRT Scoring

LRTs can be used as collateral in markets, allowing leveraged positions through looping. While this feature has market potential, it also carries risks. An extreme event leading to a sudden depeg could trigger a cascade of automatic liquidations, resulting in bad debt creation in money markets.

However, DeFi markets are generally transparent, enabling us to determine the amount of collateral in money markets compared to their TVL. This insight provides an understanding of the level of rehypothecation of an asset within DeFi, contributing to a risk/reward profile that helps users make more informed decisions.

How Can LRTs and Restaking Mechanisms Consistently Generate Revenue?

Liquidity Proxy Tokens (LPTs)
Many AVSs may require time to start providing liquid incentives, which can test the patience of users. To address this, AutoLayer proposes introducing Liquidity Proxy Tokens. These tokens are built as rewards to vaults linked to Restaking mechanisms, gradually accumulating points. Concurrently, certain users will bootstrap liquidity by providing the necessary counterpart on a DEX.

Liquidity Proxy Tokens will distribute liquid incentives to vault shareholders and accumulate incentives in a vault-like manner. Over time, they may face significant inflation and even become illiquid at certain points. To mitigate this, we can adjust the incentives for liquidity bootstrapping until AVSs begin distributing liquid incentives. Once AVS incentives are active, vaults will start a buy-and-burn process by purchasing LPTs on the market using AVS services and burning them. This generates demand while reducing supply over time.

This approach effectively buys time for AVSs to become operational and incentivize users.

Structured Products

L2 Staking Structured Products
Structured products in the crypto space can be complex and sometimes ineffective. This approach prioritizes simplicity and conservatism regarding smart contract risks.

As more Layer 2 solutions adopt staking to manage token inflation, AutoLayer proposes a vault leveraging a basket of Liquidity Reward Tokens (LRTs) as collateral to secure ARB. Staking rewards will be reinvested into the collateral, creating steady compounding interest. As some of these L2s also use AVSs, this can generate even more yield.

Multi LRTs

LRT Vaults

Multi LRTs represent leveraged products where we first acquire an LRT and subsequently use it as collateral to acquire other LRTs, such as those from Symbiotic/Karak/Nektar, driven by incentives and APY. This strategy aims to diversify yield sources and generate rewards across multiple assets with a single click.

Similar to the above structures, LRT Vaults dynamically allocate capital among different LRTs, capturing incentives from variou AVSs over time. Through rehypothecation mechanisms, the vault automatically rebalances in response to overheated AVSs, ensuring stability.