Stakers subsidize all cross-chain activity. Every IBC packet or Axelar message consumes validator compute and bandwidth. This cost is paid in slashed staking rewards, not by the dApp or user initiating the transaction.
the-appchain-thesis-cosmos-and-polkadot
Blog
The Cost of Securing the Interchain: Who Really Pays the Bill?
An analysis of the flawed economic model behind Interchain Security (ICS), where ATOM stakers subsidize consumer chains by bearing uncapped inflation and slashing risk for fees that don't reflect the true cost of capital.
introduction
THE COST DISTRIBUTION
The Interchain's Dirty Secret: Stakers Are the Bagholders
The economic burden of securing cross-chain communication falls disproportionately on proof-of-stake validators, creating a systemic risk.
The security model is a tragedy of the commons. Validators secure the entire interchain for the price of one chain. Protocols like Cosmos Hub and Polkadot Relay Chain become public goods funded by captive capital, with no direct revenue from the chains they protect.
This creates misaligned incentives. Validators optimize for maximum delegation, not maximum security. The result is consensus-level MEV extraction and soft-collusion, as seen in Tendermint-based chains, which degrades the very security users assume they're paying for.
Evidence: The Cosmos Hub's annualized inflation rate of ~7-10% is a direct subsidy to validators for providing IBC security. This is a multi-billion dollar annual cost borne by ATOM stakers, not by Osmosis or dYdX chain users.
key-trends
THE INTERCHAIN SECURITY BILL
The Appchain Security Trilemma: Cheap, Secure, Sovereign
Appchains promise sovereignty, but their security model creates a hidden cost structure that ultimately impacts users and developers.
01
The Problem: Shared Security is a Tax on Sovereignty
Relying on a parent chain like Cosmos Hub (ICS) or Polygon Avail for security creates a recurring cost. Validators must be paid in the parent chain's native token, forcing appchains to maintain a war chest or pass costs to users. This is a direct tax on sovereignty.
- Cost Leakage: Revenue flows to external validators, not the appchain's own economy.
- Economic Misalignment: Security costs are decoupled from appchain usage and success.
- Example: A gaming appchain must constantly sell its game tokens to pay ATOM stakers.
10-20%
Annual Security Cost
ATOM/ETH
Paid In
02
The Solution: EigenLayer's Re-staking Ponzi
EigenLayer attempts to lower costs by recycling Ethereum's $50B+ staked ETH to secure other chains. It's a capital efficiency hack, but creates systemic risk and a free-rider problem.
- Pooled Security: Appchains rent security from a shared pool of Ethereum validators.
- Risk Conflation: A slashable offense on an appchain can penalize Ethereum validators, creating unpredictable contagion risk.
- Who Pays?: The cost is socialized across all Ethereum stakers, not borne by the appchain's users.
$50B+
Pooled Capital
High
Systemic Risk
03
The Problem: Rollups Export Costs to Users
Optimistic and ZK Rollups (Arbitrum, zkSync) outsource data availability and settlement to Ethereum L1. Users pay for this via L1 calldata fees, which are volatile and can spike during congestion. The appchain's cheap transactions are subsidized by unpredictable user-paid premiums.
- Fee Volatility: User cost is a direct function of Ethereum's gas market.
- Hidden Subsidy: The 'cheap' L2 experience is an illusion; someone always pays the L1 bill.
- Example: An NFT mint on an L2 can cost $50+ if Ethereum is busy.
>70%
Fee = L1 Data Cost
High Var.
User Experience
04
The Solution: Celestia's Modular Gambit
Celestia decouples data availability (DA) from execution, offering a cheaper, neutral data layer. Appchains (Rollups) post data here instead of Ethereum, drastically reducing their fixed cost base. This shifts the security bill from expensive consensus to cheap data verification.
- Cost Reduction: DA costs can be >100x cheaper than Ethereum calldata.
- Sovereignty Preserved: Appchains control execution and settlement; they only rent DA.
- New Risk: Relies on Celestia's own validator set and crypto-economic security.
>100x
Cheaper DA
Modular
Risk Profile
05
The Problem: Full Sovereignty is Prohibitively Expensive
A standalone PoS chain (like a classic Cosmos SDK chain) must bootstrap and maintain its own $1B+ validator set to be secure against attacks. This requires massive token inflation or VC funding to incentivize stakers, diluting the community and creating sell pressure.
- Bootstrapping Hell: Achieving security comparable to Ethereum is economically impossible for most projects.
- Security vs. Distribution: High inflation to pay validators destroys token value for holders.
- Result: Truly sovereign chains are only viable for the largest ecosystems (e.g., Binance Chain).
$1B+
Secure TVL Target
High Inflation
Funding Mechanism
06
The Verdict: The User is the Ultimate Creditor
All security models—shared, modular, or sovereign—eventually pass costs to the end-user via higher fees, token inflation, or systemic risk premiums. The 'trilemma' is really a choice of which stakeholder bears the cost and risk latency.
- Shared Security: User pays via fees/taxes to external validators.
- Re-staking: User bears hidden systemic risk in the broader ecosystem.
- Modular: User pays less, but adopts new layer-1 risk (Celestia).
- Conclusion: There is no free lunch. Security is always paid for; the architecture just decides the invoice's recipient.
Always
User Pays
Architecture
Decides How
deep-dive
THE COST OF SECURITY
Deconstructing the Subsidy: Inflation, Risk, and Mispriced Capital
The security of the interchain is a hidden tax, paid through inflation, risk externalities, and inefficient capital allocation.
Security is a subsidy paid by token holders. Proof-of-Stake chains secure their networks by inflating the token supply to reward validators. This inflation tax dilutes every holder to fund a public good, creating a misalignment between users and security providers.
Bridges externalize risk onto users. Protocols like LayerZero and Stargate secure billions in TVL with a small validator set. The catastrophic failure risk is not borne by the protocol's capital but by the users whose assets are locked. This is a mispricing of systemic risk.
Capital efficiency is an illusion. High-yield staking and restaking pools from EigenLayer and Babylon attract capital by promising leveraged returns on security. This concentrates systemic risk and creates a reflexive feedback loop where inflated token prices temporarily mask the underlying subsidy's cost.
Evidence: Ethereum's annualized issuance for security is ~0.8% of supply. A major bridge hack would vaporize user funds while the underlying chain's security budget remains unchanged, proving the subsidy's true cost is socialized.
INTERCHAIN SECURITY COST ANALYSIS
The Security Bill: ATOM Stakers vs. Consumer Chains
A direct comparison of the economic and security trade-offs between the original Cosmos Hub model and the new Interchain Security (ICS) framework.
| Cost & Security Dimension | Traditional Cosmos Hub (ATOM Stakers) | Consumer Chain (via ICS) | Neutral Validator |
|---|---|---|---|
Primary Revenue Source | ATOM inflation + transaction fees | 100% of chain's native token fees + MEV | Delegation commissions from both |
Capital at Risk (Slashing) | ATOM bonded (native asset) | Chain's native token (non-ATOM) | ATOM + native token (dual exposure) |
Security Budget Source | ATOM inflation (~7-10% annually) | Consumer chain's token treasury/inflation | N/A |
Voting Power over Chain | Full sovereignty (Gov module) | Limited to software upgrades (no treasury) | Votes with ATOM stake weight |
Cross-Chain MEV Capture | ❌ | ✅ (via IBC relayer ops) | ✅ (as operator) |
Minimum Viable Security | ~$2.5B in staked ATOM | ~$200M in provisioned ATOM stake | Requires opt-in from >66% of ATOM valset |
Economic Alignment Risk | Concentrated in ATOM performance | Decoupled from ATOM price action | Diversified but complex to manage |
Exit Cost for Provider | N/A (native chain) | Chain must bootstrap new valset or shut down | Can unbond and redelegate (21-day delay) |
counter-argument
THE INFRASTRUCTURE DILEMMA
Steelman: The Bull Case for Subsidized Growth
Subsidized user acquisition is the only viable path to bootstrap the secure, multi-chain infrastructure required for mainstream adoption.
The bill for security is infinite. Every new blockchain or L2 must bootstrap its own validator set and liquidity pools from zero, creating a massive collective-action problem. The alternative—relying on insecure, permissioned bridges—destroys the composability that defines Web3.
Subsidies are a strategic investment in security. Protocols like Arbitrum and Optimism spend millions on user incentives to attract developers and TVL. This activity directly funds their sequencer revenue and validator staking, creating a flywheel where growth pays for its own protection.
The endpoint is a secure interchain. The goal is a future where users move assets via Across or LayerZero without thinking about security, just as TCP/IP abstracts physical cables. We pay for this abstraction layer today through token emissions and protocol treasuries.
Evidence: Arbitrum’s STIP program allocated 50M ARB to bootstrap activity, which directly increased sequencer fees and solidified its position as the dominant L2. This subsidized growth funded the very security it required.
risk-analysis
THE COST OF SECURING THE INTERCHAIN
The Breaking Point: Risks to the ICS Model
Interchain Security (ICS) externalizes validator costs to consumer chains, creating a fragile economic model where incentives are misaligned.
01
The Free Rider Problem
Consumer chains pay a flat fee for security but offload the full operational risk of slashing and downtime onto the provider chain's validators. This creates a moral hazard where poorly designed or malicious consumer chains can inflict disproportionate penalties on the provider's stakers.
- Risk Externalization: Provider chain validators bear slashing risk for chains they cannot directly govern.
- Fee Inelasticity: Flat fees don't scale with the systemic risk a consumer chain introduces to the provider's economic security.
100%
Risk Borne by Provider
Fixed Fee
Consumer Cost
02
The ATOM Tax
The provider chain's native token (e.g., ATOM) becomes a single point of failure. Its value must appreciate to keep validator rewards attractive, forcing monetary policy to subsidize interchain growth. This creates inflationary pressure and dilutes stakers if demand doesn't match supply issuance.
- Security-Rent Extraction: Validators earn from all consumer chains, but value accrual is bottlenecked to ATOM.
- Ponzi Dynamics: Model requires perpetual new consumer chain onboarding to finance existing validator set, a >50% APR requirement is unsustainable.
>50%
Target APR
1 Token
Security Bottleneck
03
The Liquidity Fragmentation Trap
ICS competes with restaking protocols like EigenLayer and Babylon for validator stake. This fractures crypto-native capital, reducing economic security for all. Validators optimize for yield, not systemic health, creating a race to the bottom on slashing risk assessment.
- Capital Efficiency War: Stakers chase highest yield across ICS, EigenLayer, and native staking.
- Security Dilution: $10B+ in restaked ETH now competes with ICS for the same validator commitment, weakening all shared security models.
$10B+
Competing Capital
Multi-Homing
Validator Strategy
04
Solution: Opt-In, Specialized Security
The endgame is app-specific security markets, not a monolithic provider. Rollups like EigenDA and Celestia already offer cheaper, opt-in data availability. Future models will see consumer chains auction security packages to validator subsets based on risk profile, moving from rent-seeking to a competitive marketplace.
- Unbundled Security: Chains purchase only the security (e.g, DA, sequencing) they need.
- Market Pricing: Slashing risk and capital cost are priced by validator cohorts, not a central treasury.
Auction-Based
Pricing Model
Specialized
Validator Cohorts
future-outlook
THE COST STRUCTURE
The Reckoning: Market Pricing or Model Collapse
The economic model for cross-chain security is fundamentally broken, forcing a choice between sustainable market pricing or subsidized collapse.
Users pay nothing directly. The current cross-chain model, exemplified by LayerZero and Axelar, externalizes security costs to application developers and token treasuries. This creates a perverse subsidy where end-users experience 'free' transactions while the underlying security bill accrues off-chain.
The bill comes due. This subsidy model is unsustainable. Protocols like Across and Stargate rely on liquidity provider incentives and token emissions, which are finite. The real cost of security must eventually be priced into transaction fees or the system fails.
Market pricing triggers consolidation. When subsidies end, only the most efficient security models survive. This favors shared security layers like EigenLayer AVSs or proof-based bridges like ZKLink Nexus, which amortize costs across many applications, over isolated validator networks.
Evidence: The 2022-2023 bridge exploit wave, totaling over $2.5B, was a direct result of underfunded security models. Protocols that cut corners on validator set size or decentralization to reduce costs became the primary attack surface.
takeaways
THE INTERCHAIN SECURITY BILL
TL;DR for Protocol Architects
Cross-chain security isn't free; it's a hidden tax on users and a systemic risk vector. Here's who foots the bill and how.
01
The User Pays the Vig
Every cross-chain swap includes a hidden security premium. This is the direct cost of paying relayers, sequencers, and validators for attestations.
- Typical Cost: 0.1% - 0.5% of transaction value.
- Hidden Tax: Often bundled into slippage, making it opaque.
- Aggregate Drain: Billions in value extracted annually by infrastructure providers.
0.1-0.5%
Hidden Tax
$B+
Annual Drain
02
The Protocol Bears the Risk
Bridges and apps inherit the security of the weakest link in their attestation stack. A failure in a third-party oracle or light client is their liability.
- Risk Transfer: LayerZero, Wormhole, Axelar secure $10B+ TVL, but a hack is a protocol hack.
- Insurance Cost: Capital inefficiency from over-collateralization or expensive coverage.
- Technical Debt: Maintaining custom verifiers for each new chain.
$10B+
TVL at Risk
Weakest Link
Security Model
03
Solution: Shared Security Sinks
Shift from per-app security to pooled, reusable verification layers. This amortizes cost and risk across the ecosystem.
- EigenLayer AVSs: Restake ETH to secure bridges like Across.
- Cosmos ICS: Consumer chains lease security from Cosmos Hub.
- OP Stack & Arbitrum Orbit: Rollups inherit L1 security, reducing bridge attack surface.
Amortized
Cost Model
Pooled
Risk
04
Solution: Intent-Based Abstraction
Decouple execution from verification. Let users express a desired outcome; let a solver network find the most secure/cost-effective path.
- Architects: UniswapX, CowSwap abstract bridge choice.
- User Benefit: Pays for outcome, not infrastructure.
- Efficiency: Solvers compete on security-price trade-offs, driving down the vig.
Outcome
Pays
Competitive
Security
05
The L1/L2 is the Ultimate Creditor
All cross-chain security ultimately derives from the economic security of the underlying settlement layers (Ethereum, Bitcoin, etc.). Their token holders are the final backstop.
- Cost Basis: Security spend is a sunk cost for the base layer.
- Free Rider Problem: Bridges extract value from L1 security without directly paying for it.
- Systemic Risk: A major bridge failure can cascade back to L1 via de-pegs and liquidations.
Sunk Cost
For L1
Final Backstop
Token Holders
06
The Verdict: Architects Must Internalize Costs
Treat security as a first-class economic parameter. Design systems that explicitly account for and optimize the cost-of-security.
- Action: Audit not just code, but security economic models.
- Action: Prefer modular security (e.g., EigenLayer, Celestia) over monolithic bridges.
- Action: Build with intent-based primitives to future-proof against evolving security landscapes.
First-Class
Parameter
Economic Audit
Required
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