Bitcoin Staking vs Interchain Security vs Ethereum Restaking: The Good, the Bad, and the Ugly Pt. II

This article assesses the success of different staking-based security mechanisms using a combination of quantitative and qualitative methods. We evaluate Bitcoin Staking (via Babylon), Cosmos' Interchain Security (ICS), and Ethereum Restaking (via EigenLayer), in terms of structural integrity, ecosystem impact, economic utility, and holistic sustainability. Recognizing that these models are at varying developmental stages, our framework aims to provide a fair, comparative analysis.

When taking the qualitative approach, these aspects focus on the structural and functional strengths of the shared security implementation. We want to look at resilience and reliability, which is anything dealing with how the protocol community responds to threats.

This means the protocol’s historical ability to detect, mitigate, and recover from security incidents. Evidence of robust monitoring and quick reaction mechanisms will separate the implementations. The next element we want to assess is the ecosystem impact by understanding each implementation's ecosystem growth over time and its reputation. The growth is analyzed by understanding how the shared security model fosters innovation, enabling smaller projects to launch with strong security guarantees.

An important thing that I personally like to assess when it comes to the success of these protocols is governance. Governance reflects the inclusivity and adaptability of the system. The level of stakeholder engagement can give a better understanding of the past, present, and future of the overall development and changes in the protocols involved.

Lastly, when it comes to a qualitative assessment, user experience is extremely important and often overlooked. Accessibility for stakers, validators, and developers is key. This can be understood by judging the onboarding processes and if the protocol has clear documentation that can foster wider adoption. Transparency also falls under user experience. Participants need to understand how shared security mechanisms operate, including fee structures, penalties, and rewards. Transparent systems improve overall user trust.

Quantitative metrics make things easier to compare. We’ll look at security-related metrics, adoption, yield, and efficiency metrics. Regarding security-related metrics, we’ll assess the TVL to compare the economic weight behind each security implementation. The Nakamoto coefficient helps indicate the cost of capital or resources required to compromise the protocol. It will reveal the cost of the threshold, and the higher the threshold, the more secure the protocol will be.

Next is the percentage of the secured Networks' market cap. Understanding the proportion of the secured networks’ total market capitalization relative to the collateral demonstrates the economic alignment between the shared security provider and beneficiaries.

Adoption metrics are more straightforward to group because they’re used much more than others such as the number of secured networks, transaction volume, and participant growth rate. The last quantitative assessment focuses on yield and capital efficiency. The yield should balance between attractive returns and sustainability. And when it comes to resource efficiency, we must look into the cost-effectiveness of leveraging shared security compared to standalone security setups. Lower relative costs indicate higher efficiency and better validator health.

To assess holistically, we must consider the Impact to Cost Ratio, overall sustainability, and security incidents that have occurred. The impact-to-cost ratio helps evaluate the security and adoption impact relative to the costs incurred. This includes things like infrastructure, yield, or opportunity costs for stakers.

Sustainability helps ensure long-term viability in terms of user participation, yield generation, and network health. Lastly, security incidents really put each model to the test and indicate which mechanism is better based on how they prevent or recover from these incidents. By integrating these quantitative and qualitative metrics, you can judge the overall effectiveness and sustainability of shared security protocols in achieving their objectives

Qualitative Assessment

1. Resilience and Reliability

• Response to Threats: Analyzes how protocol communities detect, mitigate, and recover from security incidents.

ICS

In 2023, two validators on the Neutron consumer chain reportedly "double-signed" a block during a rolling upgrade. This means they submitted two signed messages for the same block. Normally, double-signing on the Cosmos chain results in automatic slashing of funds and tombstoning (permanent ban from validating). However, Neutron, as a consumer chain secured by Cosmos via Replicated Security, requires a community vote (Prop #818) to decide on penalties. Because Replicated Security was new, penalties like slashing and tombstoning were not yet automated. There was a lot of discourse in the community and it took the standard two weeks to vote on resolving this incident. It wasn't something that was that urgent but it was a bit controversial. Fortunately the community took the full time to assess and rectify the situation.

EigenLayer

In October 2024, EigenLayer experienced a security breach resulting in the theft of approximately $5.7 million in EIGEN tokens. The incident was attributed to a phishing attack targeting an investor, leading to unauthorized access to an email thread concerning token transfers. The attacker impersonated the investor, providing their own wallet address, which led to the diversion of 1,673,645 EIGEN tokens. These tokens were subsequently sold via a decentralized exchange and converted into stablecoins, some of which were transferred to centralized exchanges. EigenLayer promptly collaborated with these platforms and law enforcement agencies, successfully freezing a portion of the stolen funds. The team emphasized that this breach was due to external factors and did not expose any vulnerabilities within their protocol.There was another security incident involving the EigenLayer X account where they pushed phishing URLs to lure crypto users in with the prospect of a token airdrop allocation. This does not diminish the level of security of the actual protocol but it does raise questions about the teams overall operational security. This highlights that the same way there are levels of decentraliation there are also differnet layers of security. A simple audit does not remove all risk but it does reduce a significant amount as you can see.

Babylon

Utilizes Bitcoin’s timestamping for finality but remains untested at scale. This is due to the youth of the protocol. Babylon’s BTC staking protocol allows for “ forkless rollups” that improve security while achieving significantly faster finality. The solution entails the sequencer locking up BTC stake that is slashable if they attempt forking attacks whicbh is assumed to be a better design for decentralized rollups (to be continued)

2. Ecosystem Impact

• Growth and Innovation: Focuses on how shared security models enable smaller projects.
  • ICS: 2 active consumer chains in 2 years; slow onboarding but reliable security.
  • EigenLayer: 47 projects onboarded; 71 AVS in development but there are concerns over AVS quality control.
  • Babylon: Currently, there are at least 8 projects publicly confirmed as integrated with or partnered with Babylon.
• Reputation: Community trust and industry endorsements.
  • ICS: Validator dependency affects reputation.
  • EigenLayer: High yield attracts participation but raises sustainability questions.
  • Babylon: Positive sentiment due to Bitcoin’s established trust.

3. Governance and Upgradability

• Stakeholder Participation: Measures inclusivity and adaptability.

ICS

The Neutron double-signing incident (August 2023) highlighted the importance of clear governance protocols. ( Neutron Incident Report).

EigenLayer

They have a protocol council which oversees EigenLayer’s governance and they The Protocol Council operates a Gnosis Safe with a 3-of-5 threshold configuration that executes routine upgrades and maintenance through a timelock that enforces a minimum 10-day delay on any queued transactions. Of these five initial members, two represent the Eigen Foundation, alongside three independent (external) members sourced from across the EigenLayer ecosystem. All external members are doxxed and can be found here but it's not clear who the internal foundation members are.

I think this should raise some questions for the community. This group is responsible for EigenLayer Improvement Proposals (ELIPs). The primary mechanisms for proposing new features and upgrades to the EigenLayer core contracts. ELIPs are version-controlled design documents that detail the motivation, technical specification, rationale, implementation path, and impact evaluation of specific proposals impacting core contracts.

There are three more councils that affect the governance of Eigenlayer: the community multisig, the operations multisig, and the pause multisig. The Community Multisig (9-of-13) is made up of doxxed Ethereum community members. Under normal conditions, they act as observers, receiving updates on the Protocol Council’s transactions and queued time-locked actions. In emergencies, they can fast-track critical upgrades or replace the timelock if private keys are compromised.

The Operations Multisig is a 3-of-6 multisig operated by Eigen Labs that can propose routine upgrades and maintenance through the timelock. It can also pause EigenLayer functionality in emergency situations.

The Pauser Multisig is a 1-of-8 multisig that can also pause EigenLayer functionality in emergency situations, but it holds no other powers. There is only one out of four multisigs that is fully doxxed. If the case of security is made for the pauser and operations multisigs I can understand but there are still eigenlayer foundation and labs individuals heavily involved in the decision making process of the protocol council that should be made public. The decentralization is there but the transparency lacks and could be improved.

Babylon

Babylon hasn’t disclosed how many people are on its governance committee or how many signatures are required for decisions. These details will likely be shaped by the project’s governance structure, as the size and powers of the committee directly affect the protocol’s decentralization. There’s no public roadmap or governance framework yet, but Babylon plans to follow Cosmos SDK governance rules. The tokenomics model also remains undisclosed.

Beyond standard governance, Babylon has a Covenant Committee responsible for enforcing staking rules to prevent attacks from BTC stakers and finality providers. Each committee member runs a covenant emulator program that verifies and co-signs BTC staking requests using a multisig.

The Covenant Committee enforces key staking rules, including:Because Bitcoin lacks native programmability, this committee ensures staking security. However, its power is strictly limited to approving or rejecting staking requests—it cannot collude against honest stakers. To prevent corruption, safeguards include counterparty oversight (e.g., foundations on the board) and governance proposals to rotate committee members when needed.

1. Slashing enforcement – If a staker is slashed, at least 33.33% of their BTC must be slashed, as per protocol rules.
2. Slashing destination – All slashed BTC must go to the protocol-designated slashing address.
3. Unbonding period – Stakers must wait at least the minimum required unbonding time before accessing their funds.

• Adaptability: Ability to address evolving risks.
  • ICS: Gradual improvements via community proposals.
  • EigenLayer: Rapid updates but slightly opaque decision making via multiple multisigs.
  • Babylon: Slower changes and it is too early to make a thorough assessment on its ability to adapt yet.

4. User Experience

• Accessibility: Onboarding ease for validators and developers.
  • ICS: High infrastructure costs deter small validators.
  • EigenLayer: Complex AVS requirements limit retail participation.
  • Babylon: Sovereign staking with lower entry barriers.
• Transparency: Clarity of operational mechanisms.
  • ICS: Clear documentation but complex governance.
  • EigenLayer: Yield structures well-publicized, governance less so.
  • Babylon: Transparent staking process. Governance process is opaque due to the lack of information we have on the committee members and how they vote. Although them highlighting the cosmos governance framework as what they will use for their everyday governance increases transparency. The protocol is still in its early phases so it will be important to see how it is actually implemented to maintain transparency.

Quantitative Assessment

1. Security-Related Metrics

• Total Value Locked (TVL): Economic weight behind each security model.
  • ICS: $1.71B secured across consumer chains.
  • EigenLayer: $8.6B restaked ETH (19% of total ETH supply).
  • Babylon: $4.3B BTC staked.
• Nakamoto Coefficient: Measures validator decentralization.
  • ICS: 6 validators control 33% of the Cosmos Hub's voting power and secure 2 chains.
  • EigenLayer: Three entities control 33% of restaked ETH.
  • Babylon: Reliant on only 214 finality providers. Staking metrics are not publicly displayed yet.
• Secured Networks' Market Cap Percentage: Economic alignment indicators.
  • ICS: 55% alignment.
  • EigenLayer: 70% alignment.
  • Babylon: 60% alignment.
• Transaction Volume Supported:
  • ICS: $30B annual volume.
  • EigenLayer: $50B across AVS.
  • Babylon: $10B across supported PoS chains.
• Participant Growth Rate:

This is based on the growth of the discord, forum, and X followers each ecosystem has. We did not track associated wallets so view this as more of a mindshare indicator.

• ICS: 15% quarterly growth.
• EigenLayer: 25% quarterly growth.
• Babylon: 20% quarterly growth.

2. Yield and Efficiency Metrics

• Staking Yield:
  • ICS: 14–18% APY for ATOM holders.
  • EigenLayer: 8–12% supplementary APY.
  • Babylon: 5–7% APY for BTC holders.
• Resource Efficiency:

ICS

High validator operational costs (~$12k/month). Operational costs scale with the number of consumer chains supported, necessitating significant infrastructure and active governance participation.

EigenLayer

Operating a validator within EigenLayer’s AVS comes with notable operational costs, particularly for those engaging in native restaking. Validators must deploy an EigenPod, set withdrawal credentials, and frequently submit proofs, all of which incur gas fees that can consume up to 30% of staking rewards over a year.

This estimate is based on a 32 ETH validator earning a 3.9% APR with an average gas price of 35 Gwei.These costs have sparked discussions within the EigenLayer community, especially as native restaking introduces higher operational complexity compared to liquid staking tokens (LSTs), which do not require periodic proofs. In response, the EigenLayer team has proposed upgrades to EigenPod contracts, including a checkpoint proof system that aims to reduce the number of required on-chain operations, lower gas fees, and enable automatic compounding of consensus rewards.

The timeline for these upgrades remains uncertain, though they are expected after the "payments" milestone and before or alongside the introduction of slashing mechanisms. Until then, validators considering participation in EigenLayer AVS must weigh the additional yield against the gas fee overhead and complexity of native restaking. Eigenlayer is efficient but complex slashing risks.

Small validator (~self-managed, single AVS, cloud-based): $300–$2,000/month Mid-sized operator (~multiple AVSs, some automation): $2,500–$7,000/month Enterprise/professional operator (~high security, multiple AVSs, custom infra):$10,000–$50,000+/month. Costs are influenced by the amount of restaked ETH and the need for robust infrastructure to manage slashing risks.

Babylon Finality Providers

Offer a more cost-effective entry point, especially for small operators, due to lower infrastructure and personnel requirements. Cost-effective with minimal infrastructure overhead.

Holistic Assessment

1. Impact-to-Cost Ratio

• ICS: High security benefits but heavy validator costs. The stakeholders that benefit the most in this relationship are the consumer chains.
• EigenLayer: Efficient yield generation but potential systemic risks.
• Babylon: Balanced impact with moderate costs.

2. Sustainability

• ICS: Dependent on consumer chain success.
• EigenLayer: Risks "ponzinomic" collapse if AVS yield incentives falter.
• Babylon: Tied to Bitcoin price stability and adoption. If stake is not delegated to a finality provider within the given window you risk losing more and more FPs over time eventually centralizing the protocol.

3. Security Incidents

• ICS: Neutron double-signing (August 2023) prompted governance action (Proposal #818).
• EigenLayer: There were phishing exploits through email and X, but nothing at the protocol level. There is also the theoretical slashing risk that looms.
• Babylon: No significant incidents reported.

Conclusion

The comparative analysis of staking-based security models reveals distinct trade-offs:

• Cosmos Interchain Security: Offers robust security and transparent governance with operational complexities.
• Ethereum Restaking: Maximizes yield but centralizes risk.
• Bitcoin Staking (Babylon): Designed to balance security and decentralization on its own layer without fully compromising Bitcoin’s purity. However, its real-world viability remains untested.

Future iterations must prioritize decentralization, yield sustainability, and cross-protocol resilience. A synthesis of Bitcoin’s robust base layer, Ethereum’s capital efficiency, and Cosmos’ governance flexibility could represent the next evolution in blockchain security.

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