Why Shared Security Fails Without Economic Alignment

Cosmos Interchain Security and Avalanche Subnets treat security as a utility to be leased, not a stake in the network's success. This creates a principal-agent problem where the validator's incentive is the fee, not the chain's long-term health.

• No Skin in the Game: Validators secure with $ATOM or $AVAX, not the subnet's native token.
• Extractable Value: Validators can front-run or censor subnet transactions with minimal repercussion.
• Race to the Bottom: Security becomes a cost center, leading to validator consolidation and reduced decentralization.

EigenLayer and Babylon commoditize cryptoeconomic security, allowing $ETH or $BTC to be re-staked to secure other chains. This creates hidden, correlated systemic risk and mispriced security.

• Security Dilution: The same capital is counted multiple times across EigenLayer AVSs, creating a $100B+ liability backed by a fraction of that in actual slashable stake.
• Correlation Bomb: A cascading failure on one AVS can trigger slashing that destabilizes all others, a risk not priced into the yield.
• Yield > Security: Actors are incentivized by restaking yield, not the integrity of the specific service they secure.

Optimistic and ZK Rollups (Arbitrum, Optimism, zkSync) outsource security to Ethereum but centralize value extraction in off-chain sequencers. This creates a governance and MEV cartel problem.

• Value Leakage: >90% of transaction profits (sequencing fees, MEV) are captured off-chain, not returned to the L1 security providers or L2 token holders.
• Security ≠ Sovereignty: While Ethereum guarantees state correctness, it does not guarantee liveness; a sequencer cartel can censor transactions.
• Token Utility Void: Native L2 tokens often lack a clear security role, becoming governance tokens with weak economic underpinning.

Polkadot's parachain model requires teams to lock $DOT via crowdloans for ~2-year leases, creating massive, illiquid capital overhead and misaligned time horizons.

• Capital Inefficiency: $1B+ in $DOT is locked and unproductive, creating enormous opportunity cost for builders.
• Temporary Alignment: Security alignment lasts only the lease period; post-lease, the parachain faces a cliff-edge security crisis.
• Validator Apathy: Collators (parachain-specific block producers) have minimal stake, while $DOT validators are indifferent to individual parachain success.

Assets securing one chain are re-staked to secure others, creating a fragile web of leverage. A single protocol failure can trigger a liquidity cascade across the entire system, as seen in the Terra/LUNA collapse.

• Key Risk: $10B+ TVL in restaking protocols creates systemic leverage.
• Key Failure Mode: De-pegging of the underlying asset (e.g., stETH) collapses all dependent chains.

Shared security pools concentrate power in a few large node operators (e.g., Lido, Coinbase). This creates centralized points of failure and enables censorship collusion, undermining the decentralized security guarantee.

• Key Risk: >33% of Ethereum validators controlled by top 3 entities.
• Key Failure Mode: Cartel can censor transactions or extract maximal MEV, breaking chain neutrality.

Bridges like LayerZero, Wormhole, and Axelar rely on external validator sets. A slashable event on a minor chain can drain the shared security pool, bricking all connected bridges and freezing $100B+ in cross-chain assets.

• Key Risk: Security is diluted across dozens of chains, lowering the cost of attack.
• Key Failure Mode: A bridge hack on a small chain drains the shared staking pool, causing a total system failure.

Slashing is the core deterrent in Proof-of-Stake. In shared models, validators face conflicting incentives—slashing a major restaker could crash the ecosystem and their own rewards. This leads to governance paralysis and unpunished faults.

• Key Risk: Economic disincentive to enforce slashing, rendering the security model toothless.
• Key Failure Mode: A major actor acts maliciously, but the network votes not to slash to avoid systemic collapse.

Projects opt for shared security (e.g., EigenLayer, Cosmos) for cheaper capital over sovereign security. This attracts lower-quality chains, creating an adverse selection problem that degrades the overall security pool's quality and resilience.

• Key Risk: Security becomes a commodity race-to-the-bottom, not a robustness guarantee.
• Key Failure Mode: A cascade is triggered not by a major chain, but by a poorly built, high-yield "parasite chain" failing.

Shared security systems often depend on oracles (e.g., Chainlink) for slashing conditions. An oracle failure or manipulation provides a single point of corruption to falsely slash honest validators or protect malicious ones, collapsing trust in the entire network.

• Key Risk: Security of $50B+ in DeFi hinges on a handful of oracle data feeds.
• Key Failure Mode: A corrupted price feed triggers unjust slashing, causing a validator exodus and network halt.

Validators secure multiple chains but their economic stake is concentrated on the primary chain (e.g., Ethereum). A failure on a smaller, high-yield consumer chain is a rounding error to their total stake, creating misaligned incentives for honest validation.\n- Consequence: Slashing on a $10M chain is irrelevant to a validator with $1B+ total stake.\n- Real-World: This is the core critique of EigenLayer's initially uniform slashing across all AVSs.

TVL is often conflated with security. Re-staked assets are highly liquid and can be withdrawn or re-delegated rapidly, creating a 'hot potato' security layer. This contrasts with a chain's native staking, which has longer unbonding periods and direct protocol penalties.\n- Consequence: $50B in restaked TVL does not equal $50B in committed security.\n- Real-World: Babylon attempts to solve this by using Bitcoin's timestamping for longer-term, cryptoeconomic commitment.

Shared security pools risk creating a single point of failure. A critical bug or governance attack on the central platform (e.g., a slashing condition exploit) can cascade to all dependent chains simultaneously, amplifying systemic risk.\n- Consequence: Diversification fails; you get the risk of the weakest AVS.\n- Real-World: Cosmos Hub's Interchain Security v1 faced this critique, leading to developments like Mesh Security for peer-to-peer risk sharing.

True security requires validators to have stake that is specific, meaningful, and at direct risk on the chain they are securing. This moves from 'rented security' to 'sovereign security' with aligned incentives.\n- Mechanism: Celestia's rollups use Data Availability (DA) fees, not validator slashing. Polygon Avail and EigenDA follow a similar service-payment model.\n- Future Model: AltLayer's Restaked Rollups and EigenLayer's Intersubjective Foraging aim to create more granular, task-specific slashing.