AVS Revenue Sharing with Stakers vs Fixed APY Security Payments

Aligned Long-Term Incentives: Stakers earn a direct % of protocol fees (e.g., EigenLayer AVS rewards). This creates a flywheel where staker success = AVS success, fostering deeper ecosystem loyalty and security.

Revenue Volatility Risk: Staker yields are tied to AVS usage and fee generation. In early stages or during low activity, yields can be negligible, making it hard to attract and retain sufficient stake for security.

Predictable Security Budget: Protocols like AltLayer or dedicated rollups pay a fixed, scheduled fee (e.g., 5% APY in ETH) to stakers. This guarantees a known cost and stable yield, simplifying treasury management and attracting conservative capital.

Misaligned Incentives & Cost Inefficiency: Stakers are paid regardless of AVS performance. During high-fee periods, the protocol overpays for security. During low usage, it lacks a mechanism to incentivize stakers to boost network activity.

Direct economic incentive alignment: Stakers earn a variable yield directly tied to the AVS's usage and fee generation (e.g., 20-50% of protocol revenue). This creates a vested interest in the AVS's success, encouraging stakers to actively monitor and promote the service. This matters for long-term, high-growth protocols like cross-chain bridges (e.g., Omni Network) or decentralized sequencers.

Unpredictable operator income: Staker rewards fluctuate with network demand, creating budgeting uncertainty. This adds significant complexity for risk-averse institutional stakers (e.g., Figment, Kiln) who prefer stable cash flows. It also requires sophisticated dashboards for stakers to track performance across multiple AVSs.

Controlled, stable operational expense: AVSs pay a fixed rate (e.g., 5-15% APY) for security, making treasury management and long-term forecasting straightforward. This is critical for enterprise-focused or DeFi primitive AVSs like AltLayer or Hyperlane, where predictable costs are prioritized over speculative upside for stakers.

Potential for passive, mercenary capital: Stakers are guaranteed a return regardless of AVS performance, which may reduce their incentive to actively secure the network or contribute to ecosystem growth. This matters for novel AVSs requiring high vigilance, such as those providing fraud proofs or decentralized watchtowers, where passive security is insufficient.

Direct alignment with protocol success: Stakers earn a variable percentage of the AVS's actual revenue (e.g., fees from EigenDA, Omni). This creates a flywheel where higher AVS usage directly benefits security providers. This matters for established protocols with proven demand like AltLayer or Hyperliquid, where stakers become long-term economic partners.

Pay-for-performance model: The AVS only pays for security when it generates value, preserving treasury capital during low-activity periods. This matters for early-stage AVSs or those with cyclical usage, as it avoids fixed costs before product-market fit. It aligns with the modular thesis of efficient resource allocation.

Unpredictable staker yields: Early-stage AVSs with low initial usage (e.g., new L2s, oracles) may fail to attract sufficient stake due to uncertain rewards. Staker APY can swing wildly based on network activity, complicating delegation decisions. This is a critical risk for bootstrapping new networks without a pre-existing user base.

Requires sustainable fee generation: The model depends entirely on the AVS's ability to create and capture value through its native token or fee mechanism. Failed tokenomics or low adoption leads to a security death spiral. This adds significant design overhead compared to a simple fixed payment.

Fixed-cost security model: The AVS contracts for security at a known, fixed annual percentage (e.g., 10% APY) paid from its treasury or inflation. This provides perfect predictability for financial planning and is easier to model for VCs and auditors. It's the preferred model for high-value, stability-first protocols like bridge or custody solutions.

Guaranteed yield attracts stake: A clear, fixed reward eliminates staker uncertainty, making it easier to attract the initial ~$1B+ in restaked ETH needed for robust security from day one. This matters for launching mission-critical infrastructure (e.g., a new consensus layer) where security cannot be compromised during the growth phase.

Constant capital outflow: The AVS pays the fixed rate regardless of its revenue or usage, creating a burn rate on the treasury. For protocols without substantial funding or revenue, this can lead to insolvency. It's a poor fit for experimental AVSs or those with long R&D cycles before monetization.

Security as a commodity: Stakers are motivated by the fixed yield, not the AVS's success. This can lead to mercenary capital that flees at the first sign of a higher yield elsewhere, potentially causing rapid depeg events. It lacks the sticky, aligned ecosystem of a true revenue-sharing partner.