Source: Midjourney
Any time you see a new opportunity to make money at no or low risk to yourself, it’s wise to be wary. However, that isn’t the same thing as immediately dismissing it.
Sometimes there are lower-risk investments, just as there are high-risk investments. Putting all your money into the stock of a startup, even if it does have a “revolutionary business model,” is a higher-risk investment. Sure, you might win big and be one of those savvy visionaries who got in on the ground floor. Statistics say, however, that you are likely going to stay on the ground floor and watch your investment crash. This is why we diversify, which allows us to be able to jump on these high-risk, high-reward deals, but only when a relatively small amount of the portfolio.
Where does crypto land in this spectrum of risky investments? That is a difficult question because while many insane meme coins will spike and crash this week alone, that doesn’t represent the crypto market. The last few years have shown that even in spite of a few fads and rough patches, the market itself continues to grow in value and momentum. Nowhere is this clearer than with Bitcoin, the original token that started it all and becomes even more of a legend each year? Following the longer-term trend, Bitcoin’s story is beyond incredible. Will this pattern continue? It’s impossible to say, even if the long-term trend has been very good. What we have a better idea of is that Bitcoin will likely continue to be valuable in the market, and that is enough to create some opportunities.
While people can choose to stake their Bitcoin and earn returns via staking rewards, the real question is whether or not they should double down and restake those returns, or cash out and diversify. There are cases to be made for both. A lot of it has to do with what exactly is staked and re-staked. If the staking is done on a general crypto platform with the normal set of features, the odds of a good return may be less than ideal. However, if the staking is tied to something value-added, something that can generate what is called a “positively reinforcing cycle,” it might be worth doing. Let’s discuss the basics of Bitcoin staking, the pros and cons, and the possibility that Bitcoin Validated Services (BVS), as designed by the SatLayer platform, might be able to generate the positively reinforcing cycle ideal for restakers.
Restaking Pros and Cons
Let’s first explain restaking at its most basic. An investor can stake their crypto to a particular platform, which then uses the frozen assets to build up stability in the platform and the token, while also helping to show the strength of support the platform has. The more assets staked on a platform, the more stable and secure that platform can be. The staked currency helps to generate returns that are then rewarded to the key members of the platform: the stakers, validators, and key participants who might supply a service. These rewards are crucial because they incentivize the actors to play their roles well and accomplish the goals of the platform. The incentives essentially motivate the ability to trust the players to perform with good intentions. When it goes well, everyone does their job well and everyone gets rewarded. The stakers who earn returns then have an important choice: do they cash out or double down, restaking their rewards into the same system in hopes of earning compound earnings?
For a staker, there is no clear answer on whether or not it is best to either cash out or restake. They can review past performance gain some insight into the volatility of the token and reward themselves. They can look at what type of returns they might get by investing the returns on something different. Or they can better understand where the rewards are coming from and decide based on that. While the first two choices can offer some insight, it’s the third that offer the biggest understanding of what actions they should take.
Simply put, restaking on a normal platform, unless it is incredibly stable, is a high risk. Instead of diversifying, the staker believes strongly that the current positive situation will only continue. However, this is mostly guesswork. But what if the assets being staked weren’t just stable, but were actively creating value? This could reduce the risk of restaking if the value-creating activities are beneficial and have a strong chance of building up the crypto economy. And this is where the idea of Bitcoin Validated Services (BVS) comes in.
A BVS is a quickly evolving entity by which a platform can create (through smart contracts) attractive rewards for restakers who will provide support for the platform. They do this by taking a portion of their stake and delegating to an operator. The operators use the staked Bitcoin as collateral to create stability on the platform, and actively perform their duties to help manage the platform itself. They ensure the platform operates efficiently, and securely, and this attracts more users. Because the operators are incentivized to support the platform with their staked Bitcoin, the BVS ensures they are immediately secured in a way that native tokens can never provide. There is no more “security ramp-up” as a native token gains value. Those tokens mean security right away, which gives the platform a much better chance at success, and which means that the operators gain a generous reward. The reward is then turned around and restaked, increasing the overall return as long as Bitcoin continues to build.
The “positively reinforced cycle” occurs at this point, and is what turns restaking into less of a gamble and more of an official tool for creating consistent wealth. Stakers want returns, so they delegate their stake to operators. Operators want returns, so they behave well and do their job, earning their and the stakers returns. The platforms benefit from the bolstered security and assets, growing and attracting a larger audience. The audience uses the platform and enjoys it, boosting growth and bringing the process full circle as it attracts new stakers.
What Now?
While restaking may normally be seen as a risky proposition, when positively reinforced cycles can be created, it’s quite a bit less guesswork to see that things are going well. There are no guarantees in life, but seeing the BVS at work shows that there is a bit of method to the madness. Building up a cycle that adds value at each step, and using a token that continues to grow in value worlds above its contemporaries, is potentially the best way to ensure that restaking rewards are brought back in for continued boosting, continuing this positive cycle for these bold restakers.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice
