AVS with Consensus Rewards in ETH vs Rewards in Native Token

Direct exposure to Ethereum's economic security: Rewards are paid in the base layer's native asset, avoiding cross-chain volatility. This matters for institutional stakers and risk-averse operators who prioritize stable, dollar-denominated yield from protocols like EigenLayer, where restaked ETH secures hundreds of AVSs.

Immediate access to DeFi's deepest liquidity pool: Earned ETH can be instantly deployed across Uniswap, Aave, or MakerDAO without slippage. This matters for active treasury management and delegators who need to rebalance portfolios, unlike illiquid native tokens from newer networks.

Asymmetric upside potential and protocol control: Early operators/delegators capture maximum token appreciation, like early Celestia TIA or AltLayer ALT stakers. This matters for speculative capital and protocol-aligned builders who want voting power in networks such as EigenDA or Hyperliquid.

Powerful tool for network effects and community growth: High APY in native tokens rapidly attracts TVL and users during launch phases. This matters for new L1/L2 AVS teams (e.g., a zkSync-based sequencer) needing to bootstrap security and decentralize their operator set quickly.

Direct access to DeFi's base currency: Rewards are paid in the most liquid asset on Ethereum (ETH). Operators and delegators can immediately deploy earnings into protocols like Aave, Uniswap, or Lido without incurring swap fees or slippage. This matters for maximizing yield on staked capital.

Lower regulatory friction: ETH is widely considered a commodity by major regulators (e.g., SEC's stance on Bitcoin and Ethereum). This reduces legal overhead for institutional operators and funds compared to distributing a novel, unclassified native token. This matters for TradFi onboarding and institutional AVS participation.

Deepens ecosystem alignment: Rewards in the AVS's native token (e.g., Eigen, AltLayer's ALT) directly tie operator/delegator success to the long-term growth of that specific ecosystem. Early participants capture upside from token appreciation, similar to early ETH stakers. This matters for bootstrapping security and community for new networks.

Granular control over emission schedules: Projects can design tokenomics with vesting, lock-ups, and bonus multipliers (e.g., EigenLayer's restaking points) to encourage long-term commitment. This is harder to replicate with pure ETH rewards. This matters for protocols needing to manage inflation and ensure sustained operator loyalty.

Exposure to ETH price swings: Operator revenue and delegator APY are directly correlated with Ethereum's market performance. A bear market can drastically reduce USD-denominated returns, potentially making operations unprofitable. This matters for AVSs requiring predictable operational budgets.

High slippage and unlock sell-pressure: New or low-market-cap tokens often have shallow liquidity pools. Converting rewards to stablecoins or ETH can incur significant slippage (5-20%+). Major vesting unlocks can also depress token price. This matters for operators needing to cover real-world costs like server fees.

Direct utility and liquidity: Rewards are paid in the ecosystem's primary asset (ETH), avoiding the need to swap for gas or stablecoins. This matters for operators who prioritize minimizing transaction friction and managing a single, high-liquidity asset portfolio.

Established volatility profile: ETH's price is correlated with the broader crypto market but is less volatile than new native tokens. This matters for operators building long-term, sustainable business models who need to forecast operational costs and revenues with greater certainty.

Skin-in-the-game incentives: Rewarding with the AVS's own token directly ties operator success to protocol success. This matters for early-stage AVSs (e.g., new L2s, oracles like Chainlink, or data availability layers) seeking to bootstrap a dedicated, aligned validator set and community.

High-growth potential: Operators capture the full appreciation of the native token if the AVS succeeds. This matters for risk-tolerant operators willing to bet on a protocol's long-term adoption, similar to early validators on networks like Solana or Avalanche.

Mercenary capital risk: Operators are incentivized by ETH yield, not protocol health. They may quickly reallocate to higher-yielding opportunities, reducing network security during market downturns or if a competitor offers better ETH-denominated rewards.

Selling pressure and instability: Operators often need to sell tokens for operational costs, creating constant sell pressure. High token volatility (common in early stages) makes revenue unpredictable and complicates financial planning for node operations.