Lido Finance Faces Penalty After Validators Slashed
Lido Finance, the leading liquid staking protocol, is facing a minimum penalty of 20 Ethereum before it can withdraw its ETH from validators that were slashed. On Wednesday, 20 validators associated with Launchnodes, one of Lido’s node operators, were slashed from the Ethereum network, marking the largest number of validators slashed in a day this year. Lido has reported an initial loss of around 20 ETH to the protocol, with additional penalties expected for inactivity before exiting the network.
Understanding Slashing and Penalties
Slashing occurs when validators are forcibly removed from a proof-of-stake network due to failure in fulfilling their responsibilities. This includes prolonged downtime. Validators face a slashing penalty of 1/32 ETH (up to a maximum of 1 ETH) per slashed validator, which is deducted and burnt immediately. Additional penalties may also be imposed. These penalties need to be paid over the next 36 days before the validator can withdraw their staked amount.
Infrastructure Issues and Reimbursement
Launchnodes stated that the slashing incident occurred due to infrastructure and web3 signer configuration issues. However, they have confirmed that all infrastructure is back up and operational, and Lido has been fully reimbursed for all losses incurred so far. Lido Finance is yet to comment on the situation.
Last Slashing Event and Cover Fund
In a previous slashing event on August 26, when 12 validators were slashed at once, each validator incurred less than 1.10 ETH in penalties. In response to such incidents, Lido has built a reserve cover fund of approximately 6,200 ETH to mitigate the impact of slashing. However, this cover fund does not trigger automatically and damages have been covered by the relevant operator(s) or through the fund in previous instances. The extent of the losses from the recent slashing is still being determined, and the community will decide whether affected holders should be compensated from the Lido DAO cover fund.
Hot Take: Lido Finance Faces Consequences for Slashing Incident
Lido Finance, the leading liquid staking protocol, has encountered penalties after a group of validators associated with one of its node operators was slashed from the Ethereum network. This incident resulted in an initial loss of around 20 ETH to the protocol, with additional penalties expected. Slashing penalties are imposed on validators who fail to fulfill their responsibilities properly. The recent slashing event highlights the importance of maintaining robust infrastructure and web3 signer configurations. Lido has built a reserve cover fund to mitigate slashing impacts, but it remains to be seen if affected holders will be compensated. The community will play a role in deciding the outcome.
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