Optimal allocation for LSTs, their liquidity pools and restaking strategies becomes complicated when dealing with different possible LSTs and strategies due to several interconnected factors:

• Diverse Yield Strategies: Each yield strategy, such as liquid staking, restaking and staking offers different risk-return profiles. For example, a restaking strategy on Eigenlayer consists to secure one of the many AVS or a combination of them. The number of strategies possible for securing an activity increases with the number of AVSs. Each AVS provides rewards and relevant slashing risks. It might offer steady returns but lower flexibility, while yield farming can provide higher returns with greater risk and volatility.
• Interconnected Risks: Each asset and strategy carry its own set of risks, including smart contract risk, liquidity risk, and market risk. Balancing these risks across a diversified portfolio is complex. For instance, a protocol might be highly lucrative but have higher smart contract risks due to less robust auditing.
• Transaction Costs and Efficiency: Frequent rebalancing to maintain optimal allocation can incur significant transaction costs, especially on high-fee blockchains like Ethereum. The protocol needs to weight the benefits of rebalancing against the transaction costs involved.
• Performance Metrics and Rebalancing: The criteria for rebalancing — such as yield performance, risk thresholds, and market indicators — must be carefully defined and monitored. Executing complex algorithms in real-time to adjust allocations is required.

To address these complexities, Resquared uses sophisticated advanced algorithms, continuous monitoring, and automated rebalancing mechanisms. These tools help manage the dynamic interplay between different assets and strategies, ensuring the portfolio remains optimized for maximum returns and minimum risk.