‍TL;DR: 

• Security requires diversification of investments, especially across AVS ops
• Risk-return optimisation requires ability to rebalance portfolio easily
• Diversification and rebalancing require access to a variety of AVSs, restaking protocols, and AVS operators
• How do we get diverse access? A restaking aggregation layer.

What is Byzantine’s service aggregation?

We’re already seeing a huge fractionalisation of the industry - and it isn’t set to stop anytime soon. Restaking will grow across protocols on Ethereum, and eventually onto other chains.

In simplest terms, Byzantine Finance gives easy access to restaking via any protocol, delegate to any AVS operator, and secure any AVS.

But why does that matter? Well, as it turns out, easy access to diversification is quite essential.

Restaking right now

By now, we all know what restaking is. You read our extensive explanation on the subject, right? Yes? Good.

We recall:

Restaking, unlike staking, is not a specific investment, but rather an investment class. Any actual restaking investment, even just something as basic as an LRT, involves a lot of choices - like which protocol to use, which AVSs to validate, which operators to go for, etc. - and that’s before asking questions around what asset to invest and through which protocol / provider to complete the transaction.

Every restaking investment therefore is a structured product - every AVS position is a portfolio. And as with any portfolio, since you paid attention in finance classes, you know that you want to maximise risk-adjusted returns. In other words, you maximise total returns less any expected slashings. That difference is not only immensely important now, but will also define the restaking products that dominate in the long-term. We’re already seeing the first AVS selection frameworks dropping to optimise risk-adjusted returns.

So, how do we minimise that risk?

Primarily, restaking risk depends on:

• AVS portfolio slashing conditions
• Restaking protocol slashing mechanisms
• AVS operator performance
• (In small part) Ethereum staking conditions (if you choose to restake on Ethereum)

The matter of Ethereum staking conditions is one that we will discuss in more detail in another blog post - we’re super excited to tell you about DVT and validation credit auctions.

The matter of non-Ethereum restaking is one that we will discuss in more detail in yet another blog post - and frankly, I’m even more excited about that one.

For now, let’s talk about the two ways in which AVS, protocol, and AVS operator risks are best addressed.

#1: A solid AVS selection framework

As the market evolves, more and more AVS selection frameworks will appear. Two that deserve a particular shoutout are the ones built by Chorus One and Gauntlet.

Both of them are based primarily on assessments of AVS slashing conditions, assessments of restaking protocol slashing mechanisms, and an estimation of yield. After all, we want to maximise yield less expected slashing.

The primary challenge surrounding this is of course that building a generalised framework when the slashing conditions for many AVSs are not yet known is difficult. As more and more is revealed, the frameworks in question will undoubtedly evolve and see more friends joining the market.

But you are impatient. You want to restake NOW. So you make like MacGyver and work with what you got - you create an analysis and execute it. You get a decent margin of error, but nonetheless, you’ve built yourself a risk-optimised portfolio. I’m proud of you. Now, you of course need an infrastructure that allows you to execute on this investment decision quickly - by giving access to a wide variety of restaking protocols, AVSs, and AVS operators, since that is what the ideal portfolio will require (more on that in point #2).

Equally importantly, however, the landscape is evolving fast - you will need to review your portfolio regularly. This means that you need something with enough flexibility to permit updates to your restaking portfolio without requiring a vast infrastructure rework every time - in short, service aggregation.

#2: Diversification. The old classic.

At present, given the young age of the restaking industry and the resulting limited available data, broad diversification is the by far most effective lever to de-risk a restaking portfolio.

Diversifying operators

We recall that with EigenLayer, restaked assets are delegated to specific operators, who then validate one or multiple AVSs.

It is certainly not optimal to have every AVS operator secure every AVS. Even in a situation where a restaker wishes to secure all AVSs, splitting the AVS risk load among several operators, each of whom has a share of the overall investment delegated to them, is much less risky, based on an exceptionally interesting research paper on Optimising AVS Allocations written by our friends at Gauntlet.

It becomes apparent that balancing a restaking investment across a number of operators greatly mitigates drawdown risk because:

• Spreading the restaking investment across a large number of operators each validating a smaller number of AVSs decreases potential correlated slashing incidents.
• AVS operation is a young field, so accidental slashing may still occur and must be shielded against - and working with many operators minimises against this kind of counterparty risk.

Diversifying protocols

Diversity in protocols is something that is rarely talked about in restaking, but it matters for the same reason that client diversity matters in Ethereum: A catastrophic bug would mean all of us stop having fun. I hope we’re all quite familiar with why one should not put all of one’s eggs in one basket.

Additionally, the different restaking protocols popping up as you’re reading this already present vastly different mechanics - be it rewards, slashing, or AVS selection - and a strong portfolio benefits from including several.

#3: Bonus point - operator rebalancing

This one isn’t really about security as much as increased gains, but oh well. It’s my blog post. I can write what I want.

There are many situations in which portfolio rebalancing, either across protocols, AVSs, or operators, is required.

Firstly, updates or new information relating to yield or slashing conditions will of course influence the AVS assessment framework mentioned in point #1 and will, at a certain point, require rebalancing. Simulations run by Gauntlet’s research team show that this really only makes sense once you’re rebalancing into several new AVSs, but the point stands.

Secondly, when new protocols or AVSs join the market - perhaps with great conditions or mechanisms - and suddenly you want some of your stake to be delegated through or to them. Easy peasy.

Lastly, an interesting side note of Gauntlet’s lovely research paper on Optimising AVS Allocations is the estimation of rebalancing benefits as the result of specific partnership incentives. Those managing a large restakeable asset base will almost certainly be incentivised by specific AVSs to delegate a stake to those AVSs’ security. Such incentives could happen in the form of points or even additional rewards. In those cases, the ability to rebalance quickly and efficiently is essential.

Restaking’s future

In the medium- to long-term, risk analysis itself will become a competitive differentiator. Given the complexity of building an AVS strategy, the majority of the market will rely on specialised structured product builders for this.

For example, an exchange or even a custodian would develop a set of “restaking vaults” - diversified in AVSs, protocols, and AVS operators to maximise security. Their clients, who already trust the platform in question with their investment, will gladly accept that abstraction of complexity and trust the brand and expertise.

To bring that product to market quickly, this platform then needs to bring the product to market fast, which can’t happen if they need to build all their infrastructure and integration themselves. And THAT, in a nutshell, is why service aggregation is so essential. 

Diversification matters enormously, and service aggregation makes it possible.

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