The restaking game enters the second half: how to leverage LRT and AVS to capture market share?
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The restaking game enters the second half: how to leverage LRT and AVS to capture market share?
Dozens of projects are set to launch in the restaking sector within the next 12 months.
Navigating Web3 tides with focused insightsAuthor: Larry Sukernik & Myles O'Neil
Compiled by: TechFlow
“If only you could see yourself in my eyes” — Lost by Dermot Kennedy
At Reverie, we spend a significant amount of time researching restaking protocols. For us, this is an exciting investment category because the market landscape remains unclear (opportunities often lie within ambiguous markets) and activity is highly dynamic (dozens of projects in the restaking space are expected to launch over the next 12 months).
We’ve developed some observations about potential trends in the restaking market over the coming years—many things are emerging rapidly, where today’s truths may not hold tomorrow. Nonetheless, we’d like to share with you our preliminary insights into the commercial dynamics reshaping this market.
Liquid Restaking Tokens (LRTs) as Leverage Points
Today, LRTs such as Etherfi/Renzo occupy a pivotal position in the restaking supply chain: being close to both the supply side (stakers) and the demand side (AVSs), they sit at the intersection of both sides of the transaction. If this trajectory continues, it will enable LRTs to
(i) determine their own fee margins,
(ii) influence the fee structure of underlying markets (e.g., EigenLayer, Symbiotic).
Given their strong positioning, we expect restaking markets to launch first-party LRTs in order to counterbalance the power held by third-party LRTs.
AVSs/Restakers as Leverage Points
The world’s best markets share two characteristics: decentralized supply and decentralized demand. To understand this intuitively, consider what happens when one or both sides of the market are concentrated. Imagine a simple apple trading market where the largest apple seller controls more than 50% of apple supply. In this case, if the marketplace operator decides to raise fees from 5% to 10%, the large seller might threaten to move their business elsewhere. Similarly, on the demand side, if the largest apple buyer controls more than 50% of apple demand, she can threaten to use another marketplace (or buy directly from suppliers) if the platform increases its cut.
Returning to the restaking market, if the final market structure becomes concentrated on either the AVS side (top 10% of AVSs capturing over 50% of revenue) or the restaker side (top 10% of restakers holding over 50% of deposits), the natural outcome would be reduced ability for the market to extract value (and thus warranting lower valuations).
While there isn’t enough data yet for rigorous analysis, our intuition is that power laws apply here too: large AVSs will capture most of the total payment volume, giving them pricing leverage over whatever fee the market ultimately wants to charge.
Battle for Exclusive AVS Access
From each restaking market’s perspective, any opportunity to do something competitors cannot is worth pursuing. The simplest way for a restaking market to differentiate itself is by offering restakers exclusive access to AVSs—whether first-party ones like EigenDA or third-party ones secured through exclusive partnerships. This is conceptually similar to Sony developing PS5-exclusive games to drive hardware sales.
Due to these dynamics, we expect restaking markets to launch more first-party AVSs and/or enter exclusive agreements with third-party AVSs. In short, expect a battle for AVSs in the coming months.
AVS Subsidies
AVSs need to pay operators/restakers for services rendered, which effectively means AVSs must be ready to pay in native tokens, ETH/USDC, or potentially via points/future airdrops. However, since most AVSs so far have been early-stage startups without tokens, large balance sheets, or well-designed point systems/airdrops, onboarding operators/restakers has proven to be a cumbersome process (most EigenLayer partnerships involve custom contracts negotiated privately). Simply put, this is a situation where a customer wants to buy a service, likely has payment capacity, but lacks immediate funds.
To facilitate growth, it’s highly likely that restaking markets will “pre-pay” operator/restaker rewards—either using their own native tokens, balance sheet assets, or possibly issuing “cloud credits” for AVSs to distribute to operators/restakers. In return for such pre-funding, one would expect AVSs to commit to future token airdrops/allocations to the restaking market. Alternatively, the restaking market could front this funding to convince the AVS to choose them over competing platforms.
In short, we expect restaking markets to compete fiercely over the next 12–24 months by subsidizing AVS expenses. Similar to Uber/Lyft dynamics, the restaking market with the deepest pockets or largest token treasury may ultimately emerge victorious.
White-Glove Concierge Service
Going from “I want to launch an AVS” to “actually deployed in production” is much harder than it appears—especially for small teams with limited R&D bandwidth. For example, teams must answer questions such as: How much security should I purchase? For how long? How much should I pay operators/restakers? What should I slash, and by how much?
Best practices will eventually emerge, but until then, restaking markets will need to hand-hold AVS teams through these decisions (notably, EigenLayer currently lacks formal payment or slashing mechanisms). As such, we expect successful restaking markets to resemble enterprise sales businesses, providing white-glove integration and support services to help clients adopt their platform.
Graduating from the Market
An interesting dynamic that may emerge is the most successful AVSs (additional validation services) on a restaking market eventually leaving the ecosystem as they grow larger, opting instead to manage their own security and validator networks independently.
Today, restaking is best suited for smaller projects that:
(i) lack the time/funds/brand/relationships to recruit their own validator set,
(ii) don’t have a high-valued token to secure their network.
But as projects scale up, their next step may be to exit the restaking market, recruit their own validator set, and secure their network using their now higher-valued token.
Conceptually, this resembles dating marketplaces (like Hinge or Tinder), where the most successful users eventually leave the platform. Yet for marketplace operators, user churn is bad news—you lose a customer (which is partly why dating apps trade at lower valuation multiples compared to markets with high reuse and low churn).
One-Stop Crypto SaaS
To illustrate this point, let’s first look at software history: Cloud providers like AWS made it easy for developers to access everything needed to build applications or web services (hosting, storage, compute). By drastically reducing the cost and time required to develop software, a new class of specialized web services emerged. The combination of first-party cloud services and numerous “microservices” available within the platform enables cloud providers to meet all needs except core business logic—all in one place.
Restaking markets like EigenLayer aim to create a similar suite of microservices for Web3. Before EigenLayer, crypto microservices had to either fully centralize their off-chain components (passing this risk to customers) or bear the cost and complexity of launching their own operator sets and economic stakes to buy security.
Restaking markets have the potential to break this trade-off—if everything works as intended, you’ll be able to prioritize security without compromising on cost or time-to-market.
Suppose you’re building a low-cost, high-performance zk-rollup. By going to a restaking market like EigenLayer, you’d have multiple core service options—such as DA and bridging—for easy onboarding. Along the way, you’d also discover many other AVS microservices you could integrate with.
The more microservices a restaking market offers, the better the customer experience: instead of evaluating dozens of independent vendors across functionality and security, applications will be able to source all necessary services from a single restaking market. Come for service X, stay for services Y and Z.
Some AVSs Will Exhibit Network Effects (e.g., preconfs)
So far, restaking use cases have primarily focused on exporting Ethereum’s validators and economic stake. But there’s another category of “inward-facing” restaking use cases that can add functionality to Ethereum’s consensus layer without changing the protocol.
The idea is simple—you allow validators to opt into making additional commitments about the blocks they propose, in exchange for payment, with slashing enforcing compliance if they fail to uphold those commitments. We suspect only a few commitment types will have sufficient demand to attract high participation, but the value flowing through these commitments could be enormous.
Unlike “external” restaking use cases, the effectiveness of these is directly tied to validator participation. That is, even if you’re willing to pay for inclusion in a block, it’s not very useful if only 1 out of 10 validators opts in.
If every validator opts into a given commitment, the guarantee behind it becomes equivalent to Ethereum’s own protocol-level guarantees (i.e., valid blocks). By this logic, we can expect strong network effects in this category, as users of the AVS benefit from each marginal validator joining the commitment market.
While this AVS category is still evolving, logical distribution channels include Ethereum client sidecars and plugins (like Reth). And similar to proposer-builder separation, proposers may outsource this work to specialized actors in exchange for revenue sharing.
Less clear is what form these AVSs will take. While a single entity could create a general-purpose market for any commitment type, we suspect we’ll instead see specialized players emerge based on demand sources (e.g., interoperability for L2s vs. L1 DeFi-driven demand).
Conclusion
For students of business strategy, the commercial dynamics of the restaking market represent a treasure trove of material worthy of deep study.
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