Ethereum is the ultimate validator. All major restaking protocols—EigenLayer, Karak, Renzo—are built on Ethereum's Proof-of-Stake (PoS) security. They do not create new validator sets; they rent economic security from Ethereum's 30M+ ETH staked.
liquid-staking-and-the-restaking-revolution
Blog
Why Restaking Protocols Are Building on a Centralized Foundation
EigenLayer's promise of pooled crypto-economic security is a house of cards, built atop the highly concentrated and centralized validator set of Ethereum itself. This analysis dissects the critical dependency on Lido, Coinbase, and other major node operators.
introduction
THE FOUNDATION
Introduction
Restaking's rapid growth is predicated on a centralized, single-point-of-failure: the Ethereum consensus layer.
This creates a systemic dependency. The security of hundreds of AVSs (Actively Validated Services) rests on the liveness and correctness of a single underlying chain. A consensus failure or a successful 51% attack on Ethereum cascades to every restaked service.
Centralization is the business model. Protocols like EigenLayer centralize operator selection to manage this risk, creating a permissioned set of node operators. This trade-off sacrifices decentralization for perceived safety and coordination efficiency.
Evidence: Over 5.5M ETH is restaked via EigenLayer. This represents a ~$20B bet that Ethereum's consensus will not fail, making it the most critical centralized failure vector in decentralized finance.
key-trends
THE TRUST TRAP
The Centralization Contradiction
Restaking protocols promise decentralized security, but their core infrastructure relies on a handful of centralized points of failure.
01
The Oracle Problem
AVSs (Actively Validated Services) like EigenDA and EigenLayer depend on external data feeds to trigger slashing. This creates a critical dependency on centralized oracle networks like Chainlink.
- Single Point of Failure: Compromise of the oracle can lead to mass, unjust slashing.
- Trust Assumption: Decentralized validation is only as strong as its most centralized input.
>50%
AVS Reliance
1
Dominant Provider
02
The Sequencer Bottleneck
Rollups like Arbitrum and Optimism, which host major restaked services, use centralized sequencers for transaction ordering. This grants operators unilateral censorship power.
- Censorship Vector: A sequencer can freeze or reorder transactions for any AVS.
- Liveness Risk: A single operator outage halts the entire chain's activity, breaking service guarantees.
~7 Days
Forced Exit Delay
100%
Initial Control
03
The Governance Capture
Protocols like Lido and Rocket Pool control massive staking stakes. Their governance, often concentrated among whales and VCs, can direct restaked capital, creating systemic risk.
- Voting Cartels: A few entities can dictate the security budget for hundreds of AVSs.
- Meta-Governance: Control over staked assets translates to indirect control over the restaking ecosystem.
$30B+
Controlled TVL
<10
Decisive Voters
04
The Client Monoculture
Ethereum's execution layer relies heavily on Geth. A bug in this dominant client software would catastrophically impact all restaking protocols built atop it, as seen in past Nethermind and Besu outages.
- Correlated Failure: A client bug becomes a network-wide event.
- Slashing Cascade: Faulty client logic could trigger unjust penalties across the restaking stack.
~85%
Geth Dominance
1 Bug
To Break All
05
The Operator Centralization
In practice, a small cohort of professional node operators (e.g., Figment, Chorus One) run the majority of restaked validators. This recreates the exact custodial risk that crypto aims to eliminate.
- Key Concentration: A handful of entities hold the signing keys for $10B+ in restaked ETH.
- Regulatory Target: Centralized operators are vulnerable points for legal enforcement actions.
<100
Major Operators
>60%
Market Share
06
The Bridge Dependency
Cross-chain restaking and AVS composability force reliance on bridging protocols like LayerZero and Axelar, which themselves have centralized upgrade keys and relayers.
- Trust Bridge: A malicious bridge upgrade can mint infinite fraudulent receipts, draining pooled security.
- Liveness Assumption: Bridges often have emergency pause functions controlled by multisigs.
5/9
Multisig Keys
Infinite
Mint Risk
CENTRALIZATION RISK MATRIX
Validator Concentration: The Numbers Don't Lie
Comparative analysis of validator set centralization across major restaking protocols and underlying L1s, highlighting the foundational risk to shared security.
| Metric / Feature | EigenLayer (Ethereum) | Babylon (Bitcoin) | EigenDA (Celestia) | Swell L2 (Alt-Layer) |
|---|---|---|---|---|
Active Validator Count | ~200,000 (Ethereum) | ~1,000 (Bitcoin) | ~100 (Celestia) | ~50 (Permissioned Set) |
Top 3 Entities' Share of TVL |
|
|
| 100% (Swell/AltLayer Ops) |
Minimum Stake to Run a Node | 32 ETH ($~100k) | ASIC + Operational Costs (~$10k+) | ~100 TIA ($~700) | Permissioned Only |
Geographic Decentralization | Global, but ~33% US-based | Concentrated in Low-Cost Energy Regions | Early Distribution to Global Community | Not Disclosed |
Slashing Risk Centralization | Low (Distributed Ethereum Set) | High (Concentrated Mining Pools) | Very High (Small, Coordinated Set) | Absolute (Centralized Operator) |
AVS Defaults to L1 Security | ||||
Uses Dual Staking (e.g., ETH + AVS Token) |
deep-dive
THE FOUNDATION
The Slippery Slope: From LSTs to AVS Security
The security of restaking protocols is built on a centralized foundation of liquid staking tokens.
LSTs are the root asset. The security of EigenLayer and EigenDA originates from the underlying Liquid Staking Tokens (LSTs) like Lido's stETH and Rocket Pool's rETH. The economic security of every Actively Validated Service (AVS) is a derivative of this initial staking choice.
Centralization is inherited. The centralization risk of major LST providers directly transfers to the restaking ecosystem. A consensus failure or slashing event at Lido or Coinbase compromises the security of all AVSs built atop those LSTs, creating systemic risk.
Security is not additive. Restaking creates the illusion of shared security, but the underlying capital is not new. It recycles the same 32 ETH stake, creating correlated slashing risk across multiple services instead of isolating failure domains.
Evidence: Lido commands over 30% of all staked ETH. This single point of failure underpins a significant portion of the restaked ETH securing new AVSs, creating a systemic dependency on its continued, flawless operation.
counter-argument
THE CENTRALIZATION PARADOX
The Rebuttal (And Why It Fails)
Restaking protocols argue their decentralization is sufficient, but their foundational reliance on Ethereum's consensus creates a critical, unaddressed vulnerability.
The core argument fails because it conflates validator set decentralization with economic security. EigenLayer and Babylon rely on Ethereum's Proof-of-Stake validators for slashing, but this outsources the most critical governance function—the power to confiscate capital—to a separate, non-aligned network.
This creates a misaligned incentive structure. Ethereum validators prioritize ETH's security, not the restaked assets they secure. In a conflict, their economic interest is to protect their ETH stake, creating a systemic failure point for all restaking protocols built atop them.
The slashing mechanism is a black box. The actual logic for penalizing operators for faults in AVSs (Actively Validated Services) is opaque and requires complex, subjective oracles. This centralizes trust in the EigenLayer multisig or similar governing bodies to interpret and execute, reintroducing a single point of failure.
Evidence: The initial EigenLayer launch operated with a 6-of-10 multisig controlling over $15B in restaked assets. While temporary, this demonstrates the inherent centralization pressure in bootstrapping these systems, a pressure that protocol design does not eliminate.
risk-analysis
THE SINGLE POINT OF FAILURE
Cascading Failure Scenarios
Restaking protocols concentrate systemic risk by building on a small set of foundational, centralized components.
01
The Ethereum Execution Client Monoculture
Over 90% of Ethereum validators run Geth. A critical bug in this dominant execution client would simultaneously crash the majority of EigenLayer operators and all major liquid restaking tokens (LRTs) like ether.fi and Renzo, freezing billions in TVL.\n- Single Bug, Total Collapse: No client diversity means no failover.\n- LRT Contagion: All LRTs are exposed to the same underlying infrastructure risk.
>90%
Geth Dominance
$20B+
At-Risk TVL
02
Oracle Consensus Reliance
AVSs (Actively Validated Services) like EigenDA and Omni Network depend on external oracle committees (e.g., EigenLayer's EigenOracle) for data feeds and cross-chain state verification. A 51% attack on the oracle set or a bug in its consensus logic creates a universal input failure.\n- Garbage In, Garbage Out: Corrupted data propagates instantly to all dependent AVSs.\n- Centralized Attestation: The security model reverts to trusting a small, known committee.
~31
Committee Size
100+
Dependent AVSs
03
Operator Centralization & MEV
Top 5 operators control a disproportionate share of restaked ETH. This creates a centralized cartel vulnerable to coordinated downtime or maximal extractable value (MEV) attacks that can manipulate AVS outputs. Platforms like Kelp DAO and Swell aggregate into these large nodes.\n- Cartel Formation: Large operators can collude to censor or extract rent.\n- MEV-Triggered Slashing: Sophisticated attacks could force mass slashing events across the ecosystem.
>40%
Top 5 Operator Share
High
MEV Incentive
04
The LRT Liquidity Black Hole
During a crisis, the de-pegging of a major Liquid Restaking Token (e.g., eETH) would trigger mass redemptions, overwhelming the underlying operator withdrawal queue (7+ days). This creates a bank run scenario where liquidity vanishes, collapsing DeFi collateral loops on Aave and Compound.\n- Withdrawal Queue Bottleneck: Technical limit creates a liquidity trap.\n- DeFi Contagion: Cascading liquidations spread to non-restaking markets.
7+ Days
Queue Delay
$5B+
DeFi Exposure
05
Shared Sequencer Dependency
Rollups using a shared sequencer AVS (like Astria or Espresso) for decentralized ordering inherit a common failure mode. If the shared sequencer fails or is malicious, dozens of L2s halt simultaneously, breaking cross-chain composability for protocols like Uniswap and Aevo.\n- Single Choke Point: Centralizes L2 transaction censorship risk.\n- Cross-Rollup Fragility: Turns parallel chains into a synchronized system.
Dozens
L2s Affected
~2s
Failure Propagation
06
The Governance Bomb
EigenLayer's upgrade mechanism is controlled by a multi-sig, creating a central point of administrative failure. A compromised key or a malicious upgrade could redefine slashing conditions or drain treasury funds, invalidating the security guarantees of every AVS overnight.\n- Admin Key Risk: Short-term decentralization theater.\n- Protocol-Wide Bricking: One signature set can disable the entire ecosystem.
8/12
Multi-sig Threshold
Instant
Upgrade Execution
takeaways
THE CENTRALIZATION TRAP
TL;DR for Protocol Architects
Restaking's promise of shared security is undermined by its reliance on a few centralized points of failure.
01
The EigenLayer Foundation
The entire restaking ecosystem is a single-point-of-failure dependency on the EigenLayer smart contracts and its EigenDA data availability layer. A critical bug or governance capture here cascades to all actively validated services (AVSs).
- ~$20B+ TVL secured by one contract suite.
- AVS slashing logic is ultimately enforced by EigenLayer's code, not the base Ethereum consensus.
~$20B+
TVL at Risk
1
Core Contract Set
02
Oracle Cartelization
AVSs for oracles (e.g., eOracle, Hyperlane) create validator set overlap. The same ~200k Ethereum validators restaking through EigenLayer become the de facto source of truth for dozens of protocols, recreating the Chainlink problem with extra steps.
- >60% of Ethereum validators could dominate AVS quorums.
- Creates systemic risk of correlated failures across DeFi.
>60%
Validator Overlap
Cartel
Risk Profile
03
The Lido-esque Liquidity Monopoly
Just as Lido dominates LST liquidity, EigenLayer's first-mover advantage and points program create a liquidity moat. New AVSs are forced to build on it, further entrenching its dominance and creating a governance attack surface worth tens of billions.
- >90% market share in restaking TVL.
- Incentives are designed for protocol capture, not decentralization.
>90%
Market Share
Protocol Capture
Incentive Design
04
Solution: Fractalized Security & Multi-Homing
The endgame is AVS-specific validator sets and restaking across multiple providers (e.g., EigenLayer, Karak, Symbiotic). This fragments systemic risk and forces competition on slashing security, not just yield.
- Architects must design for validator client diversity.
- Push for interoperable slashing standards to avoid vendor lock-in.
Multi-Homing
Required
Fractalized
Security Model
05
Solution: On-Chain Verification, Not Trust
Minimize trust in the restaking middleware. Design AVSs where fault proofs and data availability are verifiable directly on Ethereum L1. Use EigenDA as a fallback, not a primary source.
- Leverage blob storage and ZK proofs for verifiable computation.
- Reduces the restaking layer to a cryptoeconomic bond, not a trusted execution environment.
L1 Verifiable
Design Goal
Fallback Only
For EigenDA
06
Solution: The Modular Counter-Stake
Build AVSs that can dynamically switch their underlying restaking provider based on performance and security audits. This turns restaking into a commoditized security layer, breaking the monopoly.
- Requires standardized AVS <> Restaker interfaces.
- Enables security derivatives and competitive slashing insurance markets.
Dynamic
Provider Switch
Commoditized
Security Goal
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