The Chorus One approach to AVS selection

Chorus One
Chorus One
May 9, 2024
5 min read
May 9, 2024
5 min read

Our EigenLayer strategy is to onboard all the AVSs that have chances of being break-out winners, while filtering out the long tail of AVSs that introduce complexity and risk. With this combination, we aim to deliver the best risk-adjusted reward APY to users delegating their restaked assets to by Chorus One. The first section covers our thesis, the second our onboarding policy and the third our track record.

1: Our thesis

The EigenLayer ecosystem will have hundreds of AVSs and be the leading mechanism for Ethereum to scale and service billions of users.

We expect individual AVSs to follow a power law distribution in competency and success, similar to the patterns observed elsewhere in crypto. For Cosmos, an application-specific ecosystem similar to EigenLayer, this data-set shows 6 chains have over $1 billion circulating market cap, 16 are between $100 million and $1 billion, and 42 are under $100 million. Most Cosmos chains never achieve significant success, with market caps exceeding $100 million. The median chain barely gains traction and struggles for attention and impact. In the broader crypto market, there are ~14,000 tokens (from CoinGecko). The median token is illiquid. All the realized alpha in crypto lies in the outliers - the top 500 chains with market caps above $90 million and sufficient liquidity. AVSs will be similar - all the returns will exist in the top 20% of AVSs.

Not only are successful AVSs the exception, but there is major alpha in early participation in promising projects with no defined market value. Most AVS projects will spend significant time in a pre-launch phase where the mainnet service does not exist. Testnets are rolled out while the developers build functionality and product features. During this phase, there is no clarity on the economics of reward delivery of the AVS. There is also no market cap, token supply, or token price information to rely on. There are likely also caps on the number of operators that can be enrolled by the project developers for testing. Because of the lack of information and transparency in the market, the overall ecosystem of Node Operators (NO’s) and restakers cannot perfectly judge the project. Hence, outsized yields, can be produced. The EIGEN token delivers the best example of such an opportunity - it delivered returns to early restakers in the 30%-60% range, depending on when exactly the restakers participated and how trading markets stabilize.

It is possible (and a mistake) to onboard the entire long-tail of AVSs. Such an approach will radically boost infrastructure complexity and risk. Complexity and risk lead to the need to charge high commissions, thus reducing the risk-adjusted APY for restakers. Eventually, it accentuates slashing risk. Technical due diligence, that tests for originality and legitimacy of software work, as well as application of software development best practices has always been and continues to be the best method for filtering out the long tail, and narrowing focus on the break-out winners.

2: Our onboarding framework

We will apply our infrastructure effort in a subset of chains that pass our strict filtering criteria. When multiple AVSs pass our filtering criteria concurrently, our internal prioritization will look at the positive signals from the projects.

Our filtering criteria focuses on evaluating the software engineering of projects. Our method for evaluation consists of 3 parts:

  • Is there a development team on the other side following good code development practices? Any competent developer or developers will produce a trace of code changes, testing suites, logical parts with commit messages, issues, debates, discussions, technical whitepapers and documentation. If these are absent, chances are high that it is an unoriginal cut-paste job belonging to the long tail of AVSs.
  • Will running this code put Chorus One infrastructure at risk? Every AVS binary we run requires access to our internal network and access to some keys. These are critical resources that can be used to attack Chorus One if the development team is malicious. It is non-negotiable for us to be able to see the source code of the AVS, and for the code binary to require access to an isolated set of keys corresponding to (only) the AVS. This filter is important so that our infrastructure remains at low risk of slashing.
  • Will the project have release management conducive to running the network stably? This is the least important factor, because this can be upgraded at later parts of a project. The essence of it is that we will be running a binary, and be subject to network issues. Is there someone to reach out with help when issues are hit? Is there a consistent way to deal with security updates? Is there a clear communication channel? etc. Bad release management is indicative of a disengaged development team, again likely belonging to the long tail.

Our filtering criteria focuses not on the easily molded exteriors of the project - the website, the podcasts or the marketing - but rather on the hard to change signal-rich factors that usually accompany a winning project in crypto.

When multiple AVSs cross our filter and require prioritization, we will prioritize them depending on the following signals:

  1. Network or Product Idea: Is the service produced by the network novel and value generating for some segment of users?
  2. Work History and Team reputation: Are the early team members reputed or have significant prior contributions?
  3. Backing by reputable investors: Investment by investors is a way of developing more confidence in (1) and (2). As such, it is the weakest positive signal because it relies on hearsay, rather than first hand experience.

3: Our track record

We’ve applied a similar framework for our onboardings across Cosmos and in our venture investments. Chorus One is the most successful validator venture investor counting early participation in Solana, Lido, Celestia, Dymension, Saga, Wormhole, GogoPool, Neutron and Osmosis. In addition, we have infrastructure certifications highlighting the care with which we operate the networks.

Cosmos is the best example of an alternative application specific eco-system similar to EigenLayer. Our selection process, applied over 6 years has consistently picked all the top 20 chains, except two. On Cosmos, we have the best track record on participating with the governance processes of application specific chains.

Our early experience in EigenLayer, which includes research on network wide risk and slashing cascades, reinforces our belief in our onboarding process. We’ve encountered AVSs with plagiarized code, closed source code, and AVSs with key management systems that would expose our entire EigenLayer setup (operator key) to attack. These experiences have made it impossible for us to follow an “onboard all AVSs” path.

As a restaker with Chorus One, you derive the following benefits with our approach:

  • A Node Operator that takes infrastructure risk seriously, and is the best prepared for slashing features to go-live on the ecosystem.
  • A Node Operator that capitalizes on the gains from early participation in winning AVSs by investing all their energy in doing that well, instead of trying to onboard every below average project.

We will never be the operator with the most number of AVSs onboarded. And that works because it is far more critical to be early supporters of the break-out successes. Here’s to finding the gems early!

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About Chorus One

Chorus One is one of the biggest institutional staking providers globally, operating infrastructure for 50+ Proof-of-Stake networks, including Ethereum, Cosmos, Solana, Avalanche, and Near, amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures. We are a team of over 50 passionate individuals spread throughout the globe who believe in the transformative power of blockchain technology.

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