Why Restaking Is Not a Free Lunch

A single AVS failure can trigger slashing across hundreds of operators, creating a systemic contagion risk. The shared security model becomes a shared failure mode.

• Correlated Penalties: Operators running multiple AVSes face exponential slashing exposure.
• Liquidity Crunch: Mass unbonding events could freeze $10B+ in TVL during a crisis.
• Game Theory Stress: Rational operators may preemptively exit risky AVSes, destabilizing the network.

Restaking rewards are a derivative of underlying chain security, not magic internet money. Marginal returns diminish as more AVSes compete for the same capital base.

• Security Dilution: Ethereum staking yield gets sliced into thinner slices for each new AVS.
• Operator Overhead: Running dozens of AVS clients increases costs, eroding net profit.
• Real Yield?: Most early AVS tokens will inflate rapidly, masking true economic sustainability.

Capital efficiency favors large, professional operators, recreating the Proof-of-Stake centralization problem at a meta-layer. Lido and Coinbase now control restaked security.

• Validator Oligopoly: Top 5 operators control >40% of EigenLayer TVL.
• AVS Gatekeeping: Major operators will curate which services launch, creating a kingmaker dynamic.
• Regulatory Target: Concentrated, identifiable entities attract scrutiny faster than permissionless networks.

Liquid restaking tokens (LRTs) like ether.fi, Renzo, Kelp create a derivative-on-derivative system. Withdrawal delays and peg mechanics add new failure points.

• Multi-Layer Redemption: Users face AVS unbonding + LRT unbonding + Ethereum unstaking delays.
• Peg Stability: LRTs trade at premiums/discounts, especially during market stress.
• Composability Risk: DeFi protocols building on shaky LRT collateral are building on sand.

The "anything can be an AVS" model floods the market with low-value, high-risk services. Operators face a monitoring nightmare, increasing slashing probability.

• Security Theater: Many early AVSes offer marginal utility but demand high security budgets.
• Operator Blind Spots: No human team can effectively audit dozens of complex, novel AVS codebases.
• Economic Misalignment: AVS token incentives often prioritize growth over sustainable security fees.

Restaking creates a regulatory gray zone between staking (commodity) and providing a service (security). The Howey Test will be applied to AVS token rewards.

• Security Redefinition: Providing cryptoeconomic security for a third-party dApp looks like an investment contract.
• Operator Liability: Professional node services may be deemed unregistered broker-dealers.
• Global Fragmentation: Jurisdictions like the EU (MiCA) and US (SEC) will create conflicting compliance burdens.

A single fault in a widely used EigenLayer AVS can trigger slashing events across hundreds of protocols simultaneously. This correlation risk is unhedgeable and creates a systemic contagion vector far beyond a single chain's failure.

• Non-Diversifiable Risk: Slashing events are binary and protocol-wide, not offset by other investments.
• Amplified Penalties: Operators slashed on a primary duty (e.g., Ethereum consensus) can also lose restaked assets.
• Liquidity Black Hole: Mass unbonding and slashing can freeze $10B+ TVL across DeFi.

Liquid restaking tokens (LRTs) like ether.fi's eETH or Renzo's ezETH promise liquidity for locked capital. However, their peg stability depends entirely on the solvency and withdrawal liquidity of the underlying restaking pool, creating a reflexive risk feedback loop.

• Depeg Scenarios: AVS slashing or validator exit queue congestion can break the LRT peg.
• Yield Compression: Aggressive LRT issuance dilutes EigenLayer points and potential airdrop value.
• Layer 2 Contagion: LRTs used as collateral on Aave or Maker can trigger cascading liquidations.

Restaking re-hypothecates Ethereum's consensus security for external systems, creating a new attack vector: governance capture of an AVS to maliciously slash honest operators. This turns Ethereum stakers into unwiring attack bounty.

• Low-Cost Attack: Capturing a niche AVS's governance may cost far less than attacking Ethereum directly.
• Opaque Delegation: Stakers delegating to operators like Figment or Staked.us cannot audit every AVS's governance.
• Regulatory Blur: Providing security-as-a-service for external protocols may trigger securities law implications.

Capital efficiency favors large, institutional operators who can manage complex risk across dozens of AVSs. This creates a centralizing pressure contrary to Ethereum's ethos, where top 5 operators could control security for the entire restaking ecosystem.

• Barrier to Entry: Solo stakers lack the tools to evaluate and hedge AVS-specific risks.
• Oligopolistic Security: A handful of entities like Coinbase or Lido become single points of failure.
• Fee Extraction: Operators capture a significant portion of AVS rewards, while delegators bear 100% of slashing risk.

Correlated slashing events across AVSs can cascade, wiping out restaked capital. This is not a bug but a feature of pooled security.

• Risk is non-diversifiable; a single AVS failure can trigger slashing across all integrated services.
• Creates a systemic contagion vector akin to 2008 CDOs, where one asset's failure poisons the pool.
• Forces AVS operators into a race to the bottom on slashing conditions to attract capital.

Liquid restaking tokens (LRTs) like EigenLayer's create a derivative layer that obscures underlying risk and fragments security.

• LRTs decouple yield from slashing risk, leading to mispriced security premiums.
• Dilutes the cryptoeconomic security of the base chain (Ethereum) by creating competing yield sinks.
• Results in layered leverage: staked ETH -> restaked -> LRT -> DeFi collateral.

The economic and technical complexity of running multiple AVSs favors large, professional operators, defeating decentralization goals.

• Barrier to entry for solo stakers skyrockets, requiring expertise across multiple consensus mechanisms.
• Leads to security cartels where a handful of operators (e.g., Figment, Chorus One) control the majority of restaked TVL.
• Creates a single point of governance failure where operator collusion can compromise all secured services.