In the fast-paced world of web3, aligning validators with the projects they secure is critical to prevent censorship and ensure robust security. The 2022 Tornado Cash sanctions on Ethereum exposed the risks of economic misalignment, where validators prioritized the base layer over project needs, leading to disruption. Canopy’s rewards system, built on economic cross-pollination, offers a bold solution. By tying validators’ financial incentives to the success of the projects they secure, Canopy creates a resilient, collaborative ecosystem. 

‍

The Risks of Misalignment: The Tornado Cash Lesson

Economic misalignment can cripple web3 projects. In August 2022, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a privacy-focused DeFi protocol. This led to significant censorship, with at least 23% of Ethereum blocks were complying with US sanctions. Why? Ethereum validators, rewarded only in ETH, had no economic stake in Tornado Cash. Their loyalty was to Ethereum’s base layer, not the project, highlighting a flaw: without alignment, validators can undermine a project’s vision under external pressure, like sanctions.

‍

This sparked a DeFi wake-up call, with projects exploring decentralized frontends to counter similar risks. Though sanctions were lifted in March 2025, the incident showed the need for better incentive alignment in web3 security.

‍

What is Economic Cross-Pollination?

Canopy’s rewards system tackles this through economic cross-pollination. Validators securing the Canopy network earn Canopy tokens and native tokens from the Nested Chains. Validators stake assets to secure Canopy’s network. By choosing to restake for Nested Chains, they validate transactions for specific projects, earning Canopy tokens and native tokens from each chain. For example, a validator securing DeFiApp (token: DAPP), GameChain (token: GAME), and DataNet (token: DATA) builds a portfolio of Canopy tokens plus DAPP, GAME, and DATA tokens. Projects can deepen this alignment by requiring or incentivizing validators to stake native tokens, granting higher rewards or governance rights, similar to DeFi staking models.

‍

This creates a web of economic ties, shifting validators’ loyalty from a single chain to the entire Canopy ecosystem. As they accumulate diverse tokens, validators become stakeholders in multiple projects, incentivizing them to prioritize ecosystem success.

‍

Why It Matters

Economic cross-pollination reduces censorship risks. Validators, invested in project tokens, are less likely to comply with external pressures that could disrupt Nested Chains, as their financial well-being depends on project success. It also offers validators diversified income, hedging against volatility and providing upside as projects grow. For the ecosystem, this fosters stronger security and collaboration, setting Canopy apart from traditional models.

‍

Canopy’s system redefines web3 security by aligning validators’ incentives with project goals, unlike traditional models where validators focus solely on the base layer (e.g., Ethereum’s ETH rewards). This shift has big implications for validators and the ecosystem.

‍

Benefits for Validators

Validators aren’t just workers; they’re co-owners of the ecosystem. By earning a basket of tokens from multiple Nested Chains, they build a diversified portfolio that can grow with project success. For instance, a validator securing five Nested Chains holds tokens with varied growth potential. This reduces reliance on a single token, offering stability against market swings and significant upside if projects thrive.

‍

This structure incentivizes validators to support diverse projects, enhancing decentralization. Their economic stake makes them less likely to censor transactions, even under regulatory pressure, ensuring project continuity. As the ecosystem grows, validators benefit directly, creating a powerful alignment.

‍

Benefits for the Ecosystem

Canopy’s system strengthens the web3 ecosystem in multiple ways:

‍

• Enhanced Security: Validators, tied to project tokens, are motivated to maintain top-notch security, reducing risks of attacks or failures.
• Censorship Resistance: If some validators face regulatory pressure, others with economic stakes in Nested Chains can maintain operations, ensuring resilience, unlike the Tornado Cash scenario.
• Collaborative Growth: Validators holding tokens from multiple projects support the entire ecosystem’s success, creating a flywheel effect: thriving projects attract more validators, who provide stronger security, driving further innovation.
• Decentralization: By incentivizing validators to secure diverse Nested Chains, Canopy reduces reliance on any single project or validator, fostering a robust, decentralized network.

‍

This contrasts with other shared security models like EigenLayer or Cosmos Interchain Security, which allow restaking but don’t emphasize native token rewards to the same extent. 

‍

Comparison to Legacy Systems

Here’s how Canopy stacks up:

‍

‍

Canopy’s rewards system, powered by economic cross-pollination, is a bold step toward a secure, decentralized web3. By aligning validators with projects, it minimizes censorship risks, strengthens security, and fosters collaboration. Validators gain diversified income and growth potential, while the ecosystem thrives on trust and innovation. In a world where DeFi faces growing scrutiny, Canopy offers a blueprint for resilience. Join us in building a web3 future where security and innovation go hand in hand.