The Future of Staking Yields: Inevitable Decline or New Models?

Blockchain security is a cost center, not a revenue stream. As TVL grows, the security budget (inflation + fees) as a percentage of total value secured must decline to remain economically sustainable. High yields become a sign of an immature, inflationary network.

• Yield Source: Primarily protocol inflation, a tax on holders.
• Economic Limit: Sustainable security spend is typically <1-2% of TVL.
• Result: Native staking APR asymptotically approaches the risk-free rate plus a small premium.

LSDs like Lido's stETH and Rocket Pool's rETH solved capital efficiency but created a yield vacuum. By enabling staked capital to be re-deployed in DeFi, they increase the total supply of yield-seeking capital, diluting returns across the ecosystem.

• Capital Multiplier: $1 staked can chase yield in multiple protocols simultaneously.
• Yield Dilution: More capital chasing the same real yield (fees) drives down APRs.
• Dominance Risk: Top-tier LSDs create validator centralization, pressuring yields for smaller players.

EigenLayer and similar restaking protocols don't create new yield; they redistribute and leverage existing security. By allowing staked ETH to secure additional services (AVSs), they create a hyper-competitive market for security, compressing yields for all but the most specialized operators.

• Yield Source: Subsidies from AVS protocols competing for security.
• The Trap: Initial high rewards are marketing spend, not sustainable revenue.
• End State: Yields converge to the marginal cost of providing cryptoeconomic security.

The Problem: New protocols (AVSs) need cryptoeconomic security but can't bootstrap it. Native staking yields are single-use. The Solution: Restaking allows ETH stakers to re-deploy their security to other networks, earning additional yield from fees paid by AVSs like AltLayer and EigenDA.

• Key Benefit: Unlocks dual yield (staking + AVS rewards) from the same capital.
• Key Benefit: Creates a $10B+ market for pooled security, funded by staking rewards.

The Problem: Yield is illiquid and unpredictable, locking capital in static positions. The Solution: Splits yield into Principal and Yield Tokens (PTs/YTs), allowing separate trading of future cash flows. Enables fixed yields or leveraged exposure to variable rates.

• Key Benefit: Creates a derivatives market on future yield, enhancing liquidity and capital efficiency.
• Key Benefit: Aggregates yield sources from Lido, Aave, and EigenLayer, offering a unified yield supermarket.

The Problem: Direct restaking is complex, illiquid, and chains users to a single operator. The Solution: Issues liquid restaking tokens (LRTs) like rsETH, abstracting away operator selection and unlocking DeFi composability.

• Key Benefit: One-click exposure to a diversified basket of EigenLayer AVS rewards.
• Key Benefit: LRTs can be used as collateral across Aave, Curve, and Pendle, creating recursive yield loops.

The Problem: Validator MEV rewards are opaque and accrue to a few sophisticated players, not the delegator. The Solution: Protocols like Flashbots SUAVE and intent-based architectures (UniswapX, CowSwap) democratize MEV. Stakers earn yield from order flow auctions and cross-domain arbitrage.

• Key Benefit: Redirects $500M+ in annual MEV from searchers back to stakers/ users.
• Key Benefit: Intent-based models abstract complexity, allowing users to specify outcomes while solvers compete for best execution.

Passive validators are liquidity providers for block builders, but capture minimal value. The ~$1B+ annual MEV market is extracted by searchers and builders, not the underlying stake. This creates a structural yield leak.

• Yield Leakage: Stakers earn only base issuance + tips, missing the bulk of chain revenue.
• Centralization Pressure: Professional operators with MEV-boosting tech out-earn solo stakers, creating an economic moat.

Dominant LSTs like Lido and Rocket Pool create a yield feedback loop. As their dominance grows (>30% of Ethereum stake), they suppress the base staking APR for everyone while their own governance token accrues the protocol's value. This commoditizes the underlying staking yield.

• APR Dilution: More stakers → lower base rewards for all.
• Value Extraction: LST protocol fees and tokenomics siphon value away from the raw yield.

EigenLayer and similar protocols amplify yield by reusing staked ETH as collateral for Actively Validated Services (AVSs). This creates systemic risk: a cascading slash across multiple AVSs could wipe out the restaked principal, far exceeding the yield earned. The model depends on perfect risk assessment, which is impossible.

• Correlated Failure: A bug in a major AVS can trigger slashing across hundreds of protocols.
• Yield-Chasing Blindness: Stakers often delegate to operators without understanding the underlying risk stack.

The answer is not passive delegation but active, algorithmically managed stake. Vaults like EigenLayer, Karak, and Symbiotic allow operators to run bespoke software (AVSs) that perform profitable work—oracle feeds, sequencing, fast finality—and share revenue directly with stakers.

• Direct Value Capture: Stakers become equity in a service business, not just lenders.
• Yield Diversification: Revenue streams are uncorrelated with base protocol issuance.

To combat the MEV tax, the stack must evolve. Proposer-Builder Separation (PBS) and enhanced versions like MEV-Boost++ aim to formalize the market, allowing validators to auction block space more efficiently and capture a greater share of MEV via in-protocol mechanisms.

• Efficient Markets: Formal auctions increase competition among builders, raising validator payouts.
• Reduced Centralization: Democratizes access to MEV revenue, reducing operator moats.

The endgame is staking as a generalized compute and security layer. Projects like Babylon (Bitcoin staking) and EigenDA (data availability) abstract the underlying asset. Stakers provide cryptoeconomic security to any chain or app, earning fees from a multi-chain economy of services.

• Asset Agnostic: Security from Bitcoin, Ethereum, Solana, etc., can be pooled.
• Service Economy: Yield is driven by demand for decentralized trust, not a single chain's inflation.