The Case for User-Governed Risk Management in Restaking

Imagine you're a liquidity fund allocating capital into restaking. With centralized LRTs, your assets are locked into pre-set strategies. If an AVS underperforms or a security flaw emerges, you have no way to adjust.

With Byzantine, you create a vault tailored to your risk profile — fully in your control, always adaptable.

In the blog, we will explore why the adaptability is a must-have and what problem it solves.

When reviewing the market, it becomes clear that most restaking platforms handle risk management inefficiently—or not at all. Many rely on centralised governance or one-size-fits-all solutions, leaving users exposed to unnecessary risks. Why is this the case? What are the trade-offs? And how can we do better?

The Centralised Approach: One-Size-Fits-All Portfolios

Most restaking platforms today offer pre-packaged products, such as Liquid Restaking Tokens (LRTs), to their users. These products are designed centrally by the project team, who determine the portfolio composition—including the Actively Validated Services (AVSs), operators, and collateral tokens.

This centralised approach has several advantages:

• Simplified UX: Users don’t have to make complex risk decisions themselves. The investment process is as simple as a single click.
• Coordination: Restaking involves multiple stakeholders—operators, validators, restaking protocols, and networks. A centralised entity can coordinate these relationships more effectively.
• Professional Decision-Making: Professional risk curators build portfolios that are trusted by users who prefer not to make these decisions themselves.
• Increased Liquidity: By pushing users into a standardised portfolio, these products create fungible positions that are easy to trade.

This model works well for DeFi retail users, who seek simple access to new products and yield without delving into the complexities of risk management. However, it falls short when it comes to scalability, flexibility, and meeting the needs of institutional and professional investors.

The Shortcomings of Centralised Governance

While centralised portfolio design has its benefits, it also introduces significant risks and limitations.

In essence, these platforms function like hedge funds with limited oversight, high counterparty risk, and little flexibility for end users.

Let’s take the example of LRTs, the most common type of structured product in restaking today.

Most LRTs claim to be non-custodial, meaning they don’t have custody over user assets and cannot steal them. However, users still surrender strategic control by investing their assets into smart contracts that allocate funds according to parameters defined by the LRT's team.

1. Counterparty Risks

While users retain custody of their assets, they relinquish control over how those assets are invested. The LRT’s team or DAO decides which AVSs to support, how strategies evolve, and when changes are implemented. This means users are locked into decisions made by others, even if market conditions or risk profiles change.

2. Security Risks

Centralised governance creates a single point of failure. If the core team or DAO is compromised, the entire protocol and its users are at risk. Additionally, complex smart contracts and voting mechanisms can be exploited by malicious actors.

3. Limits Market Efficiency

Restaking is an investment class, not an investment itself. Centralised providers offering single portfolios limit flexibility and user choice, reducing market efficiency.

4. Misaligned Incentives

Many platforms prioritise token price appreciation over the best interests of their users. This misalignment can lead to suboptimal risk management and strategy design.

TLDR: Centralised governance is not scalable, especially for institutional use, because it relies on a counterparty acting as an intransparent risk manager.

The answer: Zero governance, user-governed risk management

DeFi presents a unique opportunity to create a financial system with immutable rails, where users have full control over their assets and strategies. Byzantine is that set of rails for restaking.

Byzantine permits the creation of vaults that are entirely zero-governance - the strategy is exclusively determined by the vault creator. Since vault creation is permissionless, for the first time, Byzantine makes risk management completely permissionless in restaking. Users should make their own risk decisions, tailoring their restaking strategies to their unique goals and risk profiles.

With permissionless vault creation, Byzantine effectively enables a free market for risk-adjusted restaking portfolios.

Byzantine’s solution: Permissionless, customisable restaking

Byzantine Finance is redefining restaking by removing the limitations of centralised governance. Our platform empowers users to take full control of their restaking strategies, creating a more secure, efficient, and resilient ecosystem.

Key Features:

1. Custom Permissionless Vaults
   Byzantine’s modular design allows anyone to create a custom vault without asking for permission. Users control every aspect of their strategy, from AVS selections to risk levels and reward mechanisms.‍
2. Real-Time Adaptability
   ‍Markets move faster than governance. Byzantine’s permissionless model enables users to adapt their strategies in real time, staying ahead of market shifts and minimising exposure to risks.‍
3. Decentralised Control, Centralised Security
   By decentralising control, Byzantine Finance eliminates the single points of failure that plague traditional governance models. This not only strengthens security but also enhances capital efficiency.

What does that mean for users?

Thanks to Byzantine’s architecture, users benefit from far more scalable, flexible restaking.

Institutional investors avoid counterparty risk, customise exposure, and optimise capital efficiency by being able to build and control their own investment strategy.

Whales & Retail Investors get to maintain liquidity, adapt to market shifts fasters, and fine-tune rewards.

And finally, Intermediaries and Platforms can integrate seamless, permissionless, and fund-segregated restaking into their platform - in the most compliance-friendly way possible.

Conclusion: The Future of Restaking

The future of restaking isn’t dictated by centralised governance—it’s designed by users. Byzantine Finance is leading this transformation, providing the infrastructure for permissionless, customisable restaking strategies that put users in control.

By eliminating the disadvantages of centralised governance, Byzantine Finance is creating a more secure, efficient, and resilient restaking ecosystem. Whether you’re an institutional investor or a DeFi enthusiast, Byzantine empowers you to stake on your terms—without compromise.

Join the Restaking Revolution

At Byzantine Finance, we believe that restaking should be accessible, secure, and rewarding for everyone. Explore our platform and discover how permissionless restaking can transform your DeFi strategy.