Is Slashing Really an Issue in Proof-of-Stake Blockchains?

Last week, Lido Finance, the Ethereum liquid staking protocol, disclosed that it had encountered 20 slashing incidents due to infrastructure and signer configuration issues.

Since the launch of the Ethereum Beacon Chain on December 1, 2020, beaconcha.in reports that a total of 300 validators have been slashed. The reasons given for the slashing were 281 cases of “Attestation Violation” and 19 cases of "Purpose Violation”.

An attestation violation happens when a validator tries to sign multiple attestations within a single epoch of 32 slots. A proposer violation, on the other hand, occurs when a validator selects two different blocks for the same slot.

While 300 slashing incidents have been recorded so far, they were almost certainly not deliberate attempts to attack the network, as this would require far more than just a few validators. Instead, they predominantly arise from technical issues, infrastructure challenges, and network problems.

Some users deploy secondary validators alongside their primary ones, hoping to safeguard against potential downtime from technical glitches with their main validator. While this might sound like a good way to keep your validator running, it's risky because you might end up submitting two conflicting votes.

In the recent incident involving Lido, data center connectivity issues prompted attempts to restore validator connectivity. As a result, multiple validators were directed to a single signing service. This led to double votes for the involved validators, resulting in the slashing of 20 validators. 

Slashing incidents can come with a hefty loss, yet staking infrastructure providers have historically covered these for their users. In the case of Lido's incident, the total penalties reached 28.677 ETH (nearly $46,000), averaging 1.43 ETH ($2,250) per validator. This equates to approximately 4.4% of the mandatory ETH collateral for each validator. Nevertheless, Launchnodes, Lido's infrastructure provider, has announced that they will cover all the losses.

In 2021, a significant incident occurred, resulting in the slashing of 75 validators and a loss of 19 ETH on the Staked infrastructure provider. Staked covered all associated costs for their users. 

So, for those who are not running their own validator in the basement and instead are using a SaaS provider, there is a good chance of being compensated if something goes wrong. Additionally, there are insurance options available from SaaS providers for broader categories of slashing incidents.

While slashing incidents do happen, the proportion of slashed validators is still very small, at around 0.03% of the 862,174 active validators. Given that all of these are believed to have arisen due to technical issues, it appears that validators are well incentivized to obey the rules and secure the network.