Why Interchain Security Is a Tokenomics Problem, Not a Tech One

Proof-of-Stake security relies on slashing, but the penalty for a single bridge hack is often less than the potential profit from colluding in an attack. This creates a rational incentive to be malicious.

• Slashing is capped, often at the validator's stake, while hack profits can be unbounded.
• Cross-chain MEV opportunities can dwarf protocol rewards, pushing validators to prioritize extractive over protective behavior.

Generalized messaging layers like LayerZero and Axelar provide a public good (secure transport) but offload the cost of security to dApps. This creates a free-rider problem where no single entity is sufficiently incentivized to secure the entire network.

• Security is subsidized by dApp fees, which are volatile and application-specific.
• Risk is systemic: a failure in the shared security layer collapses all applications built on it.

Canonical bridges like Wormhole lock up $10B+ in TVL as wrapped assets. This capital is economically inert—it earns no yield and is purely at rest to back the minted representation on the destination chain.

• Massive opportunity cost for liquidity providers versus active DeFi strategies.
• Creates a centralized honeypot target, as securing the bridge vault becomes the single point of failure.

Light client bridges and optimistic models (e.g., IBC, Nomad v1) rely on a small set of watchers to prove fraud. The reward for watching is minimal, while the cost of being vigilant (gas fees, time) is constant.

• Positive externalities are not captured: the whole ecosystem benefits from a watcher's proof, but only the watcher pays the cost.
• Leads to under-provisioning of security as rational actors wait for others to act.

The latency between chain finalities creates a window for cross-domain MEV extraction. This isn't just about profit—it's a security flaw. Adversaries can perform Time-Bandit attacks, reorganizing one chain to invalidate a bridged transaction on another.

• Incentivizes chain-level attacks (e.g., 51% attacks) for interchain arbitrage.
• Turns latency from a performance issue into a direct threat to settlement guarantees.

Projects like Across Protocol and UniswapX shift the model from passively secured liquidity to a competitive, auction-based intent system. Solvers post bonds to fulfill cross-chain user intents, aligning economic incentives with correct execution.

• Capital efficiency: Liquidity remains active until the moment of settlement.
• Skin-in-the-game: Solvers' bonded capital is slashed for malicious or failed transactions.

Interchain Security (ICS) allows chains to lease security from the Cosmos Hub's validator set. The problem? No compelling economic incentive for ATOM stakers.\n- Hub validators earn only ~5-15% fee revenue from consumer chains.\n- Zero native token upside for securing external chains, creating a principal-agent problem.\n- Result: <10% of ATOM's $4B+ stake secures consumer chains, making the model niche.

EigenLayer pools Ethereum staking capital to secure other systems (AVSs). The misalignment? Uncapped, uncurated risk.\n- Restakers earn extra yield but bear slashing risk for unfamiliar protocols.\n- Risk contagion is systemic; a failure in one AVS can impact the entire pool.\n- This creates a tragedy of the commons where rational actors optimize for yield, degrading network security.

Wormhole, Poly Network, and Ronin were hacked for >$2B combined. The root cause wasn't flawed cryptography, but misaligned security budgets.\n- Bridge operators are profit-maximizers, not security maximizers.\n- Insurance funds are undercapitalized relative to bridged TVL (often <1% coverage).\n- Users bear the full risk for a service that captures minimal fees, a clear market failure.

Parachains lease security by locking DOT in 2-year auctions. The misalignment? Rigid capital allocation stifles innovation.\n- Projects must raise and lock $10M-$100M+ in DOT just for base security.\n- No granular pricing; a simple DApp pays the same as a high-value chain.\n- Result: A limited, expensive slot economy that cannot scale to 1000s of chains.

A validator's stake is local, but their actions (or failures) have global consequences. Slashing a Cosmos validator on chain A does nothing to compensate users on chain B for a bridge hack it enabled. This creates a systemic risk subsidy where one chain's security model fails to internalize cross-chain externalities.

• Risk is exported, loss is imported.
• Local slashing is a weak deterrent for interchain fraud.
• Creates moral hazard for shared validator sets.

These protocols treat cryptoeconomic security as a fungible, re-deployable resource. Ethereum validators can opt-in to re-stake their ETH to secure other systems (AVSs), creating a unified economic security layer. This aligns the validator's massive, slashable stake with the health of external protocols.

• Monetizes idle security capital.
• Creates a global cost for local misbehavior.
• Enables bootstrapping for new chains without their own token.

Interchain security often reduces to securing asset bridges, which require massive, protocol-specific liquidity pools. This capital is idle and fragmented—locked in silos like LayerZero's OFT, Axelar's GMP, or Wormhole—instead of being composable across the ecosystem. Security cost scales with TVL, not utility.

• Billions in stranded capital securing individual corridors.
• High overhead for cross-chain dApp deployment.
• Creates systemic liquidity risks during volatility.

Architectures like UniswapX, CowSwap, and Across separate routing logic from settlement. Solvers compete to fulfill user intents using the best available liquidity across chains, which can be aggregated in shared pools. This turns security from a static capital cost into a dynamic service fee.

• Liquidity becomes chain-agnostic and reusable.
• Reduces systemic capital requirements by >50%.
• Aligns solver incentives with optimal execution (including security).

Rollups demand sovereignty but outsource sequencing, creating a trust bottleneck. A malicious or negligent shared sequencer (e.g., from Espresso, Astria) can censor or reorder transactions across dozens of chains. The economic stake of the sequencer is not aligned with the cumulative value of all chains it serves.

• Centralizes L2 transaction ordering.
• Sequencer slashable stake is often <1% of secured TVL.
• Creates a new, concentrated interchain risk layer.

The endgame is an enshrined, Ethereum-level Proof-of-Stake sequencing market, where validators are elected to sequence blocks for rollups. Their entire ETH stake is slashable for liveness or censorship faults across all chains they serve. This bakes interchain security into the base layer's consensus.

• Base layer validators become the shared sequencer set.
• Aligns $100B+ of ETH stake with rollup integrity.
• Eliminates the trusted third-party sequencer model.