Why Shared Security Models Create New Economic Vulnerabilities

EigenLayer's security model relies on slashing to punish misbehavior, but this creates a systemic risk. A single large-scale slash event could trigger a liquidity crisis across the entire restaking ecosystem.

• Contagion Vector: A slash on one AVS cascades, forcing liquidations of $10B+ restaked ETH.
• Oracle Risk: Slashing decisions depend on external data oracles, a single point of failure.
• Economic Disincentive: Validators may opt for lower-risk, lower-yield AVS, centralizing security.

Networks like Espresso and Astria promise decentralized sequencing, but their economic security is often backed by the same staked assets (e.g., ETH). A market downturn creates a correlated failure mode.

• Correlated Collateral: A crash in ETH price simultaneously weakens L1, L2, and sequencer security.
• Withdrawal Queue Bottleneck: Mass exits from L2s via the shared sequencer create a 7-day+ liquidity lock, crashing effective TVL.
• MEV Redistribution: Shared sequencing redistributes, but doesn't eliminate, MEV, creating new centralization pressures.

Data availability layers like Celestia and EigenDA fragment security budgets. A failure in a high-throughput DA layer can brick hundreds of rollups simultaneously.

• Budget Fragmentation: Security is split between execution, settlement, and DA, diluting the economic defense of each.
• Throughput vs. Security Trade-off: ~100 KB/s blob throughput targets prioritize scale over individual chain security guarantees.
• Sovereign Rollup Risk: A malicious DA layer can permanently censor or withhold data with no L1 recourse.

Cross-chain messaging hubs like LayerZero and Axelar become critical infrastructure. An economic attack on their validator sets can freeze billions in cross-chain liquidity.

• Validator Set Centralization: Economic incentives lead to ~20 entities controlling most stake.
• Wormhole Precedent: The $326M hack demonstrated the catastrophic value concentrated in a single bridge.
• Cascading Invalid States: A compromised message can corrupt the state of multiple connected chains.

Liquid Staking Tokens (LSTs) like stETH are the primary collateral for restaking and DeFi. A depeg creates a reflexive death spiral across the modular stack.

• Reflexive Collateral: LSTs are staked in EigenLayer, used as collateral in DeFi, and back L2 bridges.
• Liquidation Cascade: A 5-10% depeg can trigger mass liquidations in Aave/Compound, forcing sales that worsen the depeg.
• Bridge Insolvency: Bridges holding depegged LSTs as backing become technically insolvent, freezing withdrawals.

The antidote to cascading failure is enforced economic isolation. Projects must move beyond shared risk and build with fault containment as a first principle.

• Purpose-Built Chains: App-chains with dedicated validator sets and tokenomics (e.g., dYdX v4) avoid shared risk.
• Verifiable Light Clients: Trust-minimized bridges like IBC and zkBridge reduce reliance on third-party validator economics.
• Over-Collateralization & Circuit Breakers: Isolated security pools and automated pause mechanisms prevent contagion spread.

A single slashing event on a major restaking protocol like EigenLayer can trigger a chain reaction of liquidations across hundreds of Actively Validated Services (AVS). This creates a systemic, non-isolated failure mode.

• Correlated Risk: A $1B slashing event could cascade into $5B+ of forced selling across DeFi.
• Liquidity Black Hole: Liquidations on one chain drain liquidity from others, causing cross-chain MEV attacks.

Shared sequencer networks (e.g., Espresso, Astria) centralize transaction ordering power. A dominant L2 rollup like Arbitrum or Optimism can form a cartel to extract maximal MEV, undermining the neutrality of the base layer.

• Economic Capture: A sequencer cartel could extract >30% of chain MEV, disincentivizing user activity.
• Censorship Vector: Creates a single point for regulatory pressure, unlike Ethereum's distributed validator set.

Assets like stETH or ezETH are repeatedly re-staked across EigenLayer, Kelp DAO, and DeFi lending markets. This creates a fragile, over-leveraged system where a depeg triggers a reflexive liquidity crisis.

• Reflexive Depeg: A 5% depeg can cause >50% TVL withdrawal due to cascading margin calls.
• Oracle Failure: Price feeds for rehypothecated assets become unreliable, breaking Compound, Aave vaults.

Shared security creates misaligned incentives where low-quality AVSs free-ride on the security budget provided by high-quality ones. Stakers optimize for yield, not security, leading to a tragedy of the commons.

• Adverse Selection: Stakers allocate to the highest-yielding, riskiest AVSs, degrading overall system security.
• Security Dilution: A $50B restaking pool securing 100+ AVSs provides less than $500M of effective security per service.

Cross-chain messaging protocols like LayerZero and Axelar become single points of failure. A successful attack on a shared validator set can drain liquidity across all connected chains simultaneously, not just one.

• Attack Surface: Correlated failure across $50B+ in bridged assets.
• Incentive Misalignment: Validators secure hundreds of chains for the same stake, diluting skin-in-the-game per chain.

Shared sequencer networks (e.g., Espresso, Astria) centralize block building. A dominant provider can extract maximum value and censor transactions across all rollups in the network.

• Economic Power: Control over >50% of rollup sequencing creates a de facto monopoly.
• Protocol Risk: Rollups trade decentralization for scalability, creating a new regulatory attack vector.

Systems like EigenLayer face a fundamental conflict: excessive slashing destroys capital efficiency, but insufficient slashing invites corruption. The economic design is untested at scale.

• Dilemma: $20B+ in restaked ETH cannot be slashed without causing systemic contagion.
• Real Risk: Validators may rationally choose to corrupt a smaller chain, accepting slashing, for a profit larger than their stake-at-risk on that chain.

Cosmos' Replicated Security allows small consumer chains to free-ride on the Cosmos Hub's validator set. This creates misaligned incentives where validators secure low-value chains with minimal rewards, increasing apathy and attack susceptibility.

• Economic Drag: Hub validators bear cost for marginal reward.
• Security Dilution: The provider chain's security is divided, not multiplied.