Why Shared Security Is a Liquidity Multiplier, Not Just a Safety Net

Proof-of-Stake chains lock $100B+ in TVL as unproductive collateral. This is dead weight for validators and a massive opportunity cost for the ecosystem.

• Capital Inefficiency: Staked assets cannot be used for DeFi, limiting composability.
• Validator Centralization Risk: High capital requirements exclude smaller players, harming decentralization.

Protocols like EigenLayer and Babylon transform staked ETH/BTC into reusable security for Actively Validated Services (AVSs). This turns security into a yield-bearing, productive asset.

• Capital Multiplier: The same staked ETH can secure Ethereum and a dozen AVSs, multiplying its utility.
• New Yield Source: Stakers earn additional rewards from AVS fees, creating a ~5-15% APY boost on top of base staking.

Cosmos' Interchain Security (ICS) and Polygon AggLayer allow consumer chains to rent security from a provider chain (e.g., Cosmos Hub). This commoditizes security and accelerates chain deployment.

• Instant Bootstrapping: New chains launch with $1B+ in economic security from day one.
• Liquidity Flywheel: Shared security attracts developers and users, increasing the value of the underlying staked asset, creating a positive feedback loop.

Rollups and L2s (e.g., Arbitrum, Optimism) are moving away from their own validator sets to inherit Ethereum's security via Ethereum L1 finality. This convergence creates a unified security marketplace.

• Risk Standardization: Developers choose security levels like a utility, paying for Ethereum-grade or cost-optimized tiers.
• Liquidity Unification: A single staking asset (e.g., LSTs, restaked ETH) becomes the backbone for securing the entire modular stack, creating deep, composable liquidity pools.

The problem: Sovereign Cosmos SDK chains had to bootstrap their own validator sets, a $100M+ security budget that diverted capital from dApp incentives.\nThe solution: Interchain Security (ICS) allows consumer chains to lease economic security from the Cosmos Hub's $2B+ staked ATOM, turning a cost center into a revenue stream for Hub stakers.\nThe multiplier: Consumer chains like Neutron and Stride now deploy 100% of their capital for liquidity mining and protocol-owned liquidity, creating a positive-sum security marketplace.

The problem: New protocols (e.g., AltLayer, EigenDA) need to bootstrap cryptoeconomic security from scratch, competing with DeFi yields for capital.\nThe solution: Restaking allows $15B+ in staked ETH to be natively reused to secure AVSs (Actively Validated Services).\nThe multiplier: This creates a liquidity flywheel: ETH stakers earn extra yield, AVSs get instant security, and the Ethereum ecosystem gains a unified trust layer for oracles, bridges, and co-processors without fragmenting liquidity.

The problem: Isolated L1s create liquidity silos; bridging assets is slow, expensive, and insecure.\nThe solution: Shared security via the Relay Chain allows 100+ parachains to interoperate with ~2-second finality and trust-minimized XCM messages.\nThe multiplier: This enables composable liquidity pools across the entire ecosystem (e.g., Acala's aUSD stablecoin used natively on Moonbeam). The security cost is amortized, turning every parachain's TVL into network-wide usable capital.

The problem: High L2 sequencing costs and slow state settlement create capital lock-up inefficiencies and limit DeFi composability.\nThe solution: Modular data availability via Celestia decouples execution from consensus, reducing L2 fixed costs by >90%.\nThe multiplier: Cheaper, faster- settling rollups (like Arbitrum Orbit or Optimism Stack chains) enable hyper-specialized DeFi app-chains that can share liquidity through fast bridges, turning security savings into deeper, more agile capital pools.

Shared security pools like EigenLayer or Babylon create systemic risk when a dominant AVS (Actively Validated Service) has a critical bug. A mass slashing event doesn't just punish a few nodes—it triggers a cascading liquidity withdrawal from the entire restaking pool as stakers flee to safety.

• Risk: A single AVS bug can slash $1B+ in restaked ETH.
• Result: The liquidity multiplier for all other AVS collapses instantly, creating a deflationary spiral for the ecosystem.

Restaking protocols implement 7+ day withdrawal queues to prevent bank runs. In a crisis, this feature becomes a trap. Stakers seeking to exit are locked in, while the slashable value of their assets continues to decay, creating a negative feedback loop of panic.

• Mechanism: Frozen capital amplifies fear, depressing the valuation of all AVS tokens and LSTs like stETH.
• Outcome: The promised liquidity is revealed as illiquid, breaking the core multiplier thesis.

AVSs for bridges (LayerZero, Wormhole) and oracles (Chainlink, Pyth) are the most common use-case. Their security model often depends on a handful of node operators within the restaking pool. A collusion or targeted attack on these operators can compromise the data feed for dozens of chains simultaneously.

• Attack Vector: Bribe ~33% of a specialized operator set to corrupt price feeds or finalize fraudulent cross-chain messages.
• Multiplier Effect: A single point of failure now undermines security across $50B+ in DeFi TVL.

High-yield AVS rewards create perverse incentives. Validators will naturally allocate stake to the highest-paying services, regardless of risk or social utility. This leads to security concentration in potentially frivolous or risky AVSs, draining economic security from critical infrastructure.

• Dynamic: A meme coin AVS offering 20% APY can attract more stake than a vital bridge.
• Consequence: The system's economic security becomes misallocated, making the entire stack more fragile for marginal gains.

Traditional appchains and L2s must bootstrap their own validator sets and staking tokens, locking up billions in idle, non-productive capital. This creates a liquidity tax on innovation, where securing a new chain competes with DeFi yields for the same ETH.

• Capital Inefficiency: $30B+ in solo-staked ETH earns ~3-4% APR with zero productive utility.
• High Barrier to Entry: New chains face a cold-start problem for both security and liquidity.

Restaking allows ETH stakers to rehypothecate their security to Actively Validated Services (AVSs), turning passive stake into productive, yield-generating capital. This creates a liquidity flywheel.

• Capital Multiplier: A single ETH stake can secure multiple services (rollups, oracles, bridges), earning stacked yields.
• Instant Security Bootstrapping: New protocols like EigenDA or AltLayer can tap into $15B+ in pooled security from day one.

Shared security transforms the security budget from a cost center into a tradable cash flow stream. Investors should evaluate protocols based on their AVS yield capture and slashing risk pricing.

• New Valuation Models: Protocol value accrues not just from fees but from the security-as-a-service premium it commands.
• Risk Markets Emerge: Look for the rise of insurance and slashing coverage protocols like EigenLayer's Intersubjective Forking, creating a new DeFi primitive.

Architect your application as an AVS, not a monolithic chain. This means outsourcing consensus and data availability to specialized layers like EigenDA or Celestia, focusing resources on execution and business logic.

• Radical Focus: Offload the hardest problems (security, data) to battle-tested networks.
• Interoperability by Default: Building on a shared security layer like Cosmos ICS or using EigenLayer AVSs ensures native connectivity and composable security across the ecosystem.