FAQ
How does a (re)staking marketplace work?
All (re)staking protocols can be seen as marketplaces between:
- ๐ฅ Stakers, who provide cryptoeconomic security
- ๐งโ๐ป Operators, who run the infrastructure, a.k.a. nodes/validators
- ๐ธ๏ธ Networks, who reward 1. and 2. for contributing to the security and decentralization
Each participant has its own goals:
- ๐ฅ Stakers want to (i) generate more yield on their assets and (ii) participate in the growth of new networks
- ๐งโ๐ป Operators want to increase their recurring income at minimal cost and risk
- ๐ธ๏ธ Networks want to decentralize securely
Here is how the (re)staking workflow unfolds:
- Stakers delegate their assets to Operators of their choice
- Operators opt-in to validate Networks they deem profitable and low-risk
- Networks reward both Operators and Stakers
Now, what happens if an Operator tries to harm a Network? ๐
- The Operator and its Stakers will lose all potential rewards ๐ธ
- For the most strict Networks, some assets delegated to this Operator by Stakers will get slashed (can be burned ๐ฅ or redistributed to users ๐ค)
This is why cryptoeconomic security is needed ๐
If an Operator loses its reputation, Stakers will naturally find other more reliable Operators to delegate to!
The marketplace design encourages virtuous behavior from all participants ๐ค
How does Suzaku (Re)staking work?
As explained in the previous question, there are 3 main participants in a (re)staking marketplace: the Staker, the Operator, and the Network.
Suzaku also involves another participant: the ๐งฎ Curator!
Curators can be LRT providers like Yield Yak (opens in a new tab) or Operators themselves like Chorus One (opens in a new tab).
A ๐งฎ Curator has the non-trivial tasks of:
- Selecting ๐ธ๏ธ Networks to secure depending on their risk profile
- Delegating collateral to one or more trustworthy ๐งโ๐ป Operators
- Distributing rewards to ๐ฅ Stakers
Curators are vital to the Suzaku ecosystem, as Stakers rely on their expertise to maximize yield while ensuring security โ๏ธ
Unlike in other restaking protocols, Curators are enshrined in Suzaku in the form of the Vaults that they manage, allowing anyone to track them on-chain ๐
Here is the complete Suzaku workflow with the Curator included:
- The Curator opt-in to Networks of their choice
- Stakers delegate their assets to the Curator
- The Curator in turn delegates assets to Operators of their choice *
- Operators validate the Networks *
- Networks reward Operators and the Curator
- The Curator redistributes rewards to Stakers **
* The Operators opted-in to those Networks before the Curator delegation
** Multiple distribution strategies are possible.
Why does restaking mean more stable security?
Launching a new PoS L1 is hard. To launch and decentralize its chain, the L1 team must:
- ๐ก๏ธ Ensure the L1 is secure enough to protect bridged assets
- ๐ฐ Incentivize stakers (and delegators) to purchase the L1 token and stake it with validators
๐ก๏ธ Cryptoeconomic security problematics
If only relying on its native token for security, an L1 is subject to the early death spiral risk:
- L1 token price drops โ security weakens
- Users panic and leave โ TVL drops
- L1 token price drops lower, etc.
โ With restaking:
In a "dual-staking" security setup, the L1 team complements its L1 token with a blue-chip restaked token in its validator requirements ๐
For the overall L1 security, asset-specific or global market events result in way lower security weakening!
๐งโ๐ผ Concrete example:
Scenario: a market downswing makes the L1 token drop by 25% and the blue-chip token drop by 5%
- Without restaking, the economic security drops by 25% ๐ฑ
- With restaking (e.g. 40/60 dual-staking), the economic security drops by 13% only ๐ช
As the L1 and its token mature, reliance on the restaked asset can be slowly reduced until being totally removed.
This is how restaking can ensure a more stable cryptoeconomic security and guarantee the growth of new L1s.
Why does restaking mean cheaper security?
Launching a new PoS L1 is hard. To launch and decentralize its chain, the L1 team must:
- ๐ก๏ธ Ensure the L1 is secure enough to protect bridged assets
- ๐ฐ Incentivize stakers (and delegators) to purchase the native L1 token and stake it with validators
๐ฐ Staker incentives problematics
The L1 native token, often an unknown and volatile market asset, poses a risk for holders.
As a result, the L1 team must offer enticing APY rates to attract stakers, often in the range of 15-20% ๐ธ, which leads to high selling pressure ๐
โ With restaking:
In a "dual-staking" security setup, the L1 team can complement its native L1 token with a blue-chip restaked token in its validator requirements ๐
Blue-chip token holders secure multiple L1s simultaneously, requiring way lower APYs per L1, e.g. 1-1.5% ๐
To elaborate on that: AVAX liquid-stakers earn 5.5-7% APY
Increasing this yield by 4-6% is already significant for them ๐
This can be achieved by restaking AVAX LSTs on Suzaku and securing only 4 L1s.
As a bonus, they also help the growth of projects that they like ๐ค
๐งโ๐ผ Concrete example:
Scenario: an L1 wants to reach $10m of cryptoeconomic security. Its native token stakers want 20% APY, and restakers want 1.5% APY
-
Without restaking, the 1-year security budget is $2m ๐คฏ
-
With restaking, the 1-year security budget is $0.89m ๐
This is how restaking can lower the security budget paid out in L1 token issuance, creating healthier long-term growth.
What does the Etna upgrade unlock for L1s?
Etna was the biggest upgrade of Avalanche to date!
It brings groundbreaking changes for L1 builders:
- The L1 validator nodes don't have to be part of the Primary Network anymore
- L1s can set custom rules for their validator set
Let's study each of them ๐ค
1. No need to validate the Primary Network
You can now spin up an Avalanche (opens in a new tab) validator that ONLY VALIDATES L1s.
Instead of having to stake 2,000 AVAX, L1 validators pay a 1.33 AVAX per month continuous fee ๐คฏ
This shifts the financial requirements for L1 builders
- from CAPEX (2k AVAX x 5 nodes = $450,000 ๐)
- to OPEX (1.33 AVAX x 5 nodes = $300 ๐ค)
for bootstrapping their L1!
A side effect is better fault isolation for L1s: a transaction spike on the C-Chain won't impact L1 validators ๐
2. Custom rules for L1 validator sets
Each L1 team can now delegate the management of its validator set to an address on ANY Avalanche chain, especially its own.
This means that it is possible to write rules as Solidity smart contracts, enabling any kind of logic ๐
The ValidatorManager
smart contract can be deployed on the C-Chain for maximum security or for L1 itself for maximum sovereignty.
Suzaku relies on the flexibility of the Etna upgrade to implement its (re)staking marketplace ๐ช