The Case for Dollar Restaking
At Level, we believe that the two most important use cases for cryptocurrencies are:
the permissionless access to US Dollars
the ability to secure decentralized networks against malicious actors
Level's mission is to merge these two use cases: make it 10x easier to use dollar stablecoins to provide economic security for decentralized networks.
The Defense Budget
In "The Internet Bond," Colin Myers and Mara Schmiedt wrote:
Staking... at its core represents an agreement between the bond issuer (the protocol) and the bond holder (the validator or delegator). The bond holder lends resources in return for periodic incentive payments known as rewards.
Similar to how governments borrow their national currencies from bond holders to finance national security, decentralized systems borrow cryptocurrencies from their validators or stakers to finance economic security.
Already, this has become a big business. Eight out of the twenty top coins by market cap are proof-of-stake chains that issue sovereign internet bonds to secure their networks. Around 30% (roughly $100B) of the supply of Ethereum contributes to its economic security; this percentage more than doubles with Solana and Cardano. In 2023, around $3B was paid out to Ethereum stakers for a single purpose: to make it hard for malicious actors to threaten the economic well-being of Ethereum's constituents.
Dollarizing the Internet’s Defense Bonds
The two largest narratives of 2024 so far, restaking and Bitcoin staking, have challenged the notion that decentralized networks must use their own cryptocurrencies for economic security. Implicit in both narratives is the belief that the best assets to secure networks are the ones that have actually attained the status of money.
One glaring hole in the current shared security landscape is the absence of dollar tokens and stablecoins to denominate restake. At $160B in market cap and 70-80% of on-chain transaction volume, the data clearly shows that dollar stablecoins resoundingly fulfill all three criteria of money.
The bottom line is: $160B worth of stablecoins and 27.9 million monthly active addresses using them have no way to contribute to one of the most critical applications of cryptocurrencies: economic security.
At Level, we think that’s a problem, and we’re on a mission to dollarize the Internet’s defense bonds.
For Bond Holders (Restakers)
Today, most stablecoins are idle assets that earn a “return-free risk.” With the right combination of networks, Level turns them to productive assets earning a stackable yield without changing the trust assumptions of your stablecoin.
Yield from shared security is
Additive: if your stablecoin is securing 10 networks, each of those networks will pay you a yield on the same capital
Non-custodial: you don’t need to give up custody of your funds to earn the yield
Trust-minimized: you only need to trust Tether (and, to a much lesser extent, the Level Protocol to curate the AVSs)
As an LRT provider, Level also abstracts away the challenges of curating networks, since each AVS implicitly carries some amount of slashing risk.
For Bond Sellers (Networks)
In addition, dollarized economic security can provide practical benefits for decentralized networks:
Cost savings: Unlocking new asset classes will drive down the cost of security
Capital efficiency: Restake value is more capital efficient, since restaking deals between AVS’s and LRTs are denominated in dollars (Timewave)
Forecasting: Forecasting how much economic security is needed becomes easier with a dollar-denominated bond instead of a volatile, ETH-denominated one
Stability: The value securing your network does not deviate, unlike ETH and Bitcoin
Security: Staked ETH slashing events can impact your chain security (Galaxy). Securing networks with stablecoins can mitigate the impact of using staked ETH
Level's Road Ahead
According to Visa, there are 27.9 million monthly active addresses using stablecoins. Today, there is no way for these users to contribute to the economic security of decentralized systems.
If Level is successful, we will have unlocked $160B worth of stablecoins to be used to secure decentralized networks. The "internet bonds" of the future will be denominated in the only currency that is universally accepted as money.
Let's dollarize the internet’s defense bonds.
Let’s level up the internet.
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