Validators are natural cartels. Their business model is capital-intensive, requiring massive ETH stakes or specialized hardware. This creates pressure to maximize revenue from every block, not just base consensus rewards.
mev-the-hidden-tax-of-crypto
Blog
Why Validators are Becoming Cross-Domain Cartels
An analysis of how the economic alignment of Ethereum validators and rollup sequencers is creating vertically-integrated MEV cartels, threatening decentralization and user costs across the multi-chain ecosystem.
introduction
THE CONSOLIDATION
The Slippery Slope: From Block Builders to Cross-Chain Cartels
Validator economic incentives are driving vertical integration from block production into cross-chain messaging, creating centralized choke points.
MEV is the initial vector. Builders like Flashbots and bloXroute capture value by reordering transactions. The logical expansion is capturing value from transactions that leave the chain via bridges like Across and Stargate.
Cross-chain is the next monopoly. A validator controlling a bridge's oracle or relayer can censor, front-run, or tax interchain flows. This turns a neutral infrastructure layer into a profit-extracting toll booth.
The evidence is vertical integration. Jito Labs, a major Solana stake pool, also operates a cross-chain bridge. This is the model: control stake, control the block, control the gateway. The endgame is a cross-domain cartel.
key-trends
WHY VALIDATORS ARE BECOMING CROSS-DOMAIN CARTELS
Three Trends Driving Cartel Formation
The modular stack is unbundling blockchains, creating new economic moats for validators who can capture value across execution, settlement, and data availability layers.
01
The Problem: Modular Revenue Fragmentation
Running a validator on a single L1 like Ethereum yields ~3-5% APR from MEV and fees. Modular chains like Celestia or EigenDA offer new revenue streams, but force operators to split capital and expertise. The solution is a cross-chain staking cartel.
- Capital Efficiency: Deploy the same stake across multiple networks via restaking (EigenLayer) or shared security models.
- Revenue Aggregation: Capture fees from execution (OP Stack), settlement (Fuel), and data availability (Avail) in one entity.
- Risk Diversification: Hedge against the decline of any single chain's tokenomics.
3-5x
Revenue Multiplier
EigenLayer
Key Enabler
02
The Solution: Vertical Integration of the Stack
Cartels don't just validate; they own the full infrastructure stack to capture maximum value and ensure liveness. This mirrors the consolidation seen in cloud providers like AWS.
- Full-Stack Control: Operate the sequencer (Arbitrum, Optimism), the DA layer (Celestia blobstream), and the bridge (Across, LayerZero).
- Guaranteed Performance: Eliminate coordination overhead for fast finality and cross-domain MEV extraction.
- Protocol Capture: Influence governance and fee markets of the chains they secure, creating a self-reinforcing loop.
~500ms
Cross-Domain Latency
>60%
Sequencer Share
03
The Catalyst: Institutional Demand for Yield
TradFi and large crypto funds need scalable, regulated yield products. A cross-domain cartel can package staking yields, MEV, and protocol incentives into a single, auditable financial instrument.
- Institutional Product: Offer a unified staking derivative (e.g., LST) backed by a diversified basket of chain revenues.
- Regulatory Arbitrage: Operate in jurisdictions friendly to specific chain activities (data, execution, settlement).
- Too-Big-To-Fail Dynamics: As TVL scales ($10B+), the cartel becomes critical infrastructure, securing preferential treatment and bailout guarantees.
$10B+
Target TVL
Lido
Precedent
deep-dive
THE INCENTIVE SHIFT
Anatomy of a Cross-Domain Cartel
Validator business models are evolving from single-chain staking to multi-chain, capital-efficient cartels that control critical infrastructure.
Validator revenue is commoditized. Native staking yields are compressed, forcing operators like Figment and Chorus One to seek new profit centers. This drives the pivot from passive consensus to active, cross-chain service provision.
Shared security is the cartel's moat. A validator set securing EigenLayer, Babylon, and a Cosmos consumer chain creates a unified, reusable security layer. This cross-domain leverage is more capital-efficient than isolated staking pools.
Control over sequencing is the prize. Cartels that operate shared sequencers for multiple L2s (e.g., Espresso, Astria) or provide interoperability infrastructure (e.g., LayerZero oracles) capture value at the network's coordination layer, not just its execution layer.
Evidence: The top 10 Ethereum staking entities now actively deploy capital across EigenLayer AVSs, Cosmos ecosystems, and Solana validation, demonstrating the multi-chain cartel model in practice.
CROSS-DOMAIN CARTEL FORMATION
The Centralization Scorecard: Validators & Sequencers
Metrics quantifying the consolidation of staking and sequencing power across major L1s and L2s, revealing systemic risk vectors.
| Metric / Vector | Ethereum (Lido) | Solana (Jito Labs) | Arbitrum (Offchain Labs) | Base (Coinbase) |
|---|---|---|---|---|
Dominant Entity Staking Share | 32.4% (Lido) | 33.1% (Jito) | N/A (Sequencer) | 100% (Sequencer) |
Top 3 Entities Control | 57.8% | 68.5% | 100% | 100% |
Cross-Chain Validator Overlap (vs. Top 10) |
|
| N/A | N/A |
Sequencer Profit Margin (Est.) | N/A | N/A |
|
|
MEV-Capture Infrastructure | ||||
Governance Token Control | LDO | JTO | ARB | N/A |
Slashing / Censorship Risk | Low (Distributed) | Medium | High (Centralized) | High (Centralized) |
Proposer-Builder Separation (PBS) |
counter-argument
THE CONSOLIDATION
The Bull Case: Is This Just Efficient Market Making?
Validator cartels are not a bug but a feature of a maturing, capital-intensive infrastructure layer.
Capital efficiency drives consolidation. Running validators across multiple chains like Ethereum, Solana, and Cosmos amortizes fixed costs and diversifies revenue streams, creating a natural economic moat for large operators like Figment, Chorus One, and Lido.
Shared security is the product. These cartels sell a unified security layer, abstracting complexity for application developers who no longer need to bootstrap a validator set for each new rollup or appchain.
The risk is systemic capture. A dominant cartel controlling critical bridges like Across or Stargate and major L2 sequencers creates a single point of failure for cross-domain composability and censorship resistance.
Evidence: The top five Ethereum staking providers control over 60% of stake. This concentration is replicating in the Cosmos ecosystem and among leading L2 sequencer operators.
risk-analysis
WHY VALIDATORS ARE BECOMING CROSS-DOMAIN CARTELS
The Systemic Risks of Cartel Control
The consolidation of staking, MEV, and bridging power into a few entities creates single points of failure across the modular stack.
01
The Lido Problem: Staking as a Service Cartel
Lido's ~30% market share on Ethereum creates a systemic risk to protocol finality and governance. Its dominance is now expanding to Layer 2s like Arbitrum and Base, turning a single staking protocol into a cross-chain governance cartel.
- Single Point of Failure: Compromise of Lido's node operator set could threaten chain liveness.
- Governance Capture: LDO token holders can influence votes across multiple chains where Lido's stETH is used as collateral or governance asset.
~30%
ETH Stake
10+
Chains Deployed
02
MEV Cartelization: From Builders to Cross-Chain Searchers
Entities like Flashbots and Jito Labs control the majority of block building. This power is now extending across chains via shared searcher networks and intents, allowing cartels to extract value and censor transactions universally.
- Cross-Domain Censorship: A builder cartel can enforce OFAC lists on Ethereum and its associated rollups simultaneously.
- Value Extraction Amplification: Searchers use private mempools and cross-chain arbitrage to capture MEV that should belong to users and validators.
>80%
Block Share
$1B+
Annual MEV
03
The Bridge & Oracle Oligopoly
Critical interoperability layers are controlled by a handful of players. LayerZero, Wormhole, and Axelar dominate messaging, while Chainlink dominates price feeds. This creates cartels that can manipulate state and pricing across hundreds of chains.
- Systemic Manipulation Risk: A compromised oracle or bridge can drain billions from DeFi across multiple ecosystems in a single event.
- Protocol Capture: DApp developers are forced into vendor lock-in with these oligopolies, stifling competition and innovation.
$50B+
Secured Value
50+
Chains Served
04
Solution: Enshrined & Decentralized Primitives
The only antidote to cartelization is to push critical functions into the base protocol or foster hyper-competitive, permissionless markets. Ethereum's PBS (Proposer-Builder Separation) and Solana's Jito (open network) are attempts to break builder cartels.
- Enshrined Auctions: Protocol-level block building markets prevent centralized control.
- Minimal Trust Bridges: Light client bridges like IBC reduce reliance on third-party validator sets.
- DVT for Staking: Distributed Validator Technology fragments node operator control.
1000+
DVT Validators
100+
IBC Chains
future-outlook
THE INCENTIVE SHIFT
The Fork in the Road: Cartels vs. Commoditization
Proof-of-Stake economics are driving a consolidation of validator power across multiple blockchains, creating cross-domain cartels.
Staking rewards create cartels. The primary revenue for validators is protocol-native token inflation, which incentivizes accumulating stake in a single chain to maximize yield. This creates per-chain monopolies where the top few operators control the network.
Cartels diversify to survive. To hedge against a single chain's failure, dominant validators like Figment and Chorus One now operate across Ethereum, Cosmos, Solana, and Avalanche. This cross-chain presence creates a cartel-of-cartels with systemic influence.
Commoditization is the counter-force. Protocols like EigenLayer and Babylon treat security as a commodity, allowing staked assets from one chain (e.g., ETH) to secure others. This breaks the staking monopoly by creating a competitive marketplace for cryptoeconomic security.
Evidence: The top 5 Ethereum validators control ~50% of staked ETH. These same entities are now among the top 10 validators on most major Cosmos SDK chains, demonstrating the cartel expansion.
takeaways
THE CARTELIZATION THESIS
TL;DR for Protocol Architects
The economic design of modern blockchains is inadvertently consolidating validator power across domains, creating systemic risks and new opportunities.
01
The Problem: Fragmented Security Budgets
Individual chains compete for a finite pool of stake, diluting security and creating weak points. This forces validators to diversify across chains to maximize yield, linking their economic fate.
- Economic Alignment: A validator's success on Solana is now tied to its performance on Ethereum and Cosmos.
- Attack Vector: A correlated failure (e.g., a major slashing event) can cascade across ecosystems.
~$100B
Stake at Risk
50+
Active Chains
02
The Solution: Shared Security as a Service
Protocols like EigenLayer, Babylon, and Cosmos ICS enable validators to re-stake native assets (e.g., ETH, ATOM) to secure other networks, formalizing the cartel.
- Capital Efficiency: Unlocks ~$40B+ in idle ETH security for AVSs and rollups.
- Centralization Pressure: Creates a winner-take-most market for the largest, most reliable validator sets.
15+
AVSs Secured
4.5M+ ETH
Restaked
03
The Consequence: Cross-Chain MEV Cartels
Cartelized validators coordinate to capture value across domains, from Ethereum blocks to Solana arbitrage and Cosmos IBC relays.
- Opaque Coordination: Entities like Jito Labs and Flashbots create infrastructure for cross-domain bundle flow.
- Regulatory Target: A single entity controlling sequencing across major L2s (e.g., Arbitrum, Optimism) becomes a systemic choke point.
$500M+
Annual MEV
~70%
OFAC-Compliant Blocks
04
The Architectural Imperative: Intent-Centric Design
To avoid cartel capture, new architectures like UniswapX, CowSwap, and Across abstract execution away from a monolithic validator/sequencer.
- Solver Competition: Breaks validator monopoly on transaction ordering by introducing a competitive market for fulfillment.
- User Sovereignty: Transfers risk from user to solver, reducing reliance on any single chain's security model.
10x
More Liquidity Sources
-90%
Failed Tx Risk
05
The Data: Lido, Figment, and the Staking Oligopoly
The top 5 staking providers control over 60% of staked ETH. Their expansion into Cosmos, Solana, and restaking creates a de facto governance and security cartel.
- Protocol Risk: A bug in a major provider's node software could simultaneously impact dozens of chains.
- Governance Capture: These entities wield outsized voting power in every ecosystem they touch.
>60%
ETH Stake Controlled
30+
Networks Supported
06
The Counter-Move: Decentralized Sequencer Pools
Rollups like Astria and Espresso are building shared, permissionless sequencer networks to prevent any single cartel from dominating L2 transaction ordering.
- Anti-Capture: Separates block building from proof submission, diluting validator/sequencer consolidation.
- Interop Boost: Enables native cross-rollup atomic composability without relying on a centralized bridge operator.
<1s
Time to Finality
100+
Potential Sequencers
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