Why Shared Security Models Will Centralize Power

Shared security centralizes capital. Protocols like EigenLayer and Babylon aggregate restaked assets, creating a single point of economic failure and systemic risk that dwarfs individual chain vulnerabilities.

Governance power follows capital. The largest restakers (e.g., Lido, Coinbase) will dominate the slashing committees and governance votes of hundreds of actively validated services (AVS), creating a meta-governance cartel.

This creates protocol homogeneity. AVS builders optimize for the largest, lowest-cost security provider, leading to a monoculture of economic security that stifles innovation in consensus and reduces the attack surface diversity of the broader ecosystem.

Economic gravity favors incumbents. Protocols like EigenLayer and Babylon monetize security by attracting restaked capital, creating a liquidity moat. New entrants cannot compete with established Total Value Secured (TVS) figures, leading to market consolidation.

Validator centralization is inevitable. Capital follows the highest yield, which aggregates into the largest staking pools. This recreates the Lido problem at the infra layer, where a handful of node operators control the network's liveness.

Modular stacks create dependency. Rollups using Celestia for data or EigenDA for data availability delegate critical security. This creates systemic risk where a failure in the shared resource cascades across hundreds of chains.

Evidence: EigenLayer holds over $15B in restaked ETH, creating a security budget that dwarfs all new L1s combined. This capital concentration dictates which AVSs succeed.

Shared security centralizes governance. Protocols like EigenLayer and Babylon sell pooled security as a commodity, but the capital providers who stake the most become the ultimate arbiters of network upgrades and slashing decisions.

Economic power dictates technical control. A franchise model emerges where the security provider's chain, like Cosmos Hub or Ethereum, becomes a de facto parent company, and the secured chains become franchisees with limited sovereignty.

The validator set ossifies. Major staking providers like Lido and Coinbase dominate the staking pools, creating a small, professionalized cartel that validates across hundreds of franchised chains, replicating the centralization of cloud providers.

Evidence: In Ethereum's restaking ecosystem, the top 5 node operators control over 60% of EigenLayer's TVL, creating a concentrated point of failure for dozens of actively validated services (AVS).

Security-as-a-Service centralizes power. Providers like EigenLayer and Espresso Systems sell modular security, but their economic model rewards accumulating more stake and sequencer rights. This creates a winner-take-most market where capital efficiency dictates consolidation, not decentralization.

Sovereignty is the ultimate product. The endgame for a successful security provider is not being a vendor but becoming the chain. A dominant restaking pool or sequencer network has the capital and control to launch its own L2, directly competing with its customers like Arbitrum or Optimism.

Modular stacks re-centralize. The promise of modularity fragments execution but re-concentrates consensus and sequencing. A network like Celestia provides data availability, but the real power accrues to the few entities, like AltLayer or Caldera, that bundle the most attractive restaked security and sequencer services.

Evidence: Ethereum's proposer-builder separation (PBS) shows this dynamic. While intended to decentralize, it created a builder market dominated by a few like Flashbots, who now control transaction ordering. Shared sequencer networks will replicate this centralization at the L2 level.

Security is a political problem. Shared security models like EigenLayer restaking and Cosmos Interchain Security conflate economic security with political decentralization. Concentrating validation power in a few liquid staking tokens (LSTs) like Lido's stETH creates a single point of political failure for dozens of networks.

Economic gravity centralizes. Validators optimize for yield, not sovereignty. They will flock to the largest, most lucrative restaking pools, creating validator oligopolies. This mirrors the centralization seen in Ethereum's beacon chain, where Lido and Coinbase dominate stake.

Governance becomes extractive. The security-providing chain (e.g., Ethereum, Cosmos Hub) holds veto power over its clients. This creates a hub-and-spoke hierarchy where innovation in the spokes is subject to the hub's political whims, stifling permissionless experimentation.

Evidence: In Cosmos ICS, the ATOM token holds governance over consumer chains. In Ethereum's restaking future, a Lido DAO vote could dictate the slashing conditions for hundreds of actively validated services (AVS), centralizing critical protocol decisions.

Economic gravity centralizes staking. Validator sets in EigenLayer, Babylon, or Cosmos compete for restaking yield. The largest operators with the lowest operational costs and best MEV extraction (like Figment, Chorus One) capture market share, creating an oligopoly.

Cartels dictate protocol viability. A dominant restaking cartel decides which Actively Validated Services (AVSs) or consumer chains survive. New protocols must pay tribute to this cartel for security, replicating the VC gatekeeping of Web2.

Counter-movements are already forming. Protocols like Celestia and Avail champion sovereign rollups to escape this dynamic. Their data availability layers provide security without ceding consensus control, creating a political schism in modular design.

Evidence: The top 5 operators control over 60% of staked ETH. In a restaked future, this concentration grants them disproportionate power over hundreds of AVSs and L2s built on shared security layers.