Its Not About Slashing.pdf
Institutional due diligence on Eth staking risks and their mitigations
D1conf in Bangkok - November 2024
Freddy Zwanzger
Ethereum Ecosystem Lead @ Blockdaemon
● Co-Founder & Chief Data Officer (2018 – 2021)
at Anyblock Analytics GmbH
→ acquired by Blockdaemon (since Dec 2021)
What to expect
Slashings are rare -
1 and Pectra makes them cheap
2 Risks in ETH Staking
3 Mitigations to Correlation Risks
4 How to Optimize Rewards
5 What to look for in a staking provider
Slashings are rare - and Pectra makes them cheap
● 446 validators were slashed in ~4 years,
out of ~1 million validators = 0.04%
● ~125 separate instances, practically all double-
signing due to wrong setup or careless node
failover
● Pectra hard fork (Q1-2024) will reduce initial
slashing penalty from 1 Eth per 32 Eth by 128x
or more, to ~20 USD or less
● Correlation penalty never triggered
(would require 1% = 10k validators to get slashed
within 36 day window; if 33% of staked Eth gets
slashed in that period, full collateral lost)
| Stashed Validators | Stashed by | Age | Reason | Slot | Epoch |
|---|---|---|---|---|---|
| Z. 5802 | Z. 792015 | 28 days 11 hrs ago | Attestation Violation | 10,068,525 | 314,641 |
| Z. 5004 | Z. 101099 | 28 days 11 hrs ago | Attestation Violation | 10,068,518 | 314,641 |
| Z. 68204 | Z. 204075 | 28 days 12 hrs ago | Attestation Violation | 10,068,516 | 314,641 |
| Z. 604981 | Z. 1368028 | 28 days 12 hrs ago | Attestation Violation | 10,068,514 | 314,641 |
| Z. 3315 | Z. 1324004 | 28 days 12 hrs ago | Attestation Violation | 10,068,500 | 314,640 |
| Z. 1372888 | Z. 1324004 | 28 days 12 hrs ago | Attestation Violation | 10,068,500 | 314,640 |
| Z. 35283 | Z. 800108 | 28 days 12 hrs ago | Attestation Violation | 10,068,498 | 314,640 |
| Z. 13154 | Z. 1280154 | 28 days 12 hrs ago | Attestation Violation | 10,068,495 | 314,640 |
| Z. 19607 | Z. 496043 | 96 days 11 hrs ago | Attestation Violation | 8,578,933 | 298,341 |
| Z. 163047 | Z. 980106 | 114 days 8 hrs ago | Attestation Violation | 8,450,334 | 295,322 |
| Showing 1 to 10 of 445 entries |
Risks in ETH Staking
01
Slashing
(maliciously or stupid)
02
Downtime
(offline penalty)
03
Rewards & Liquidity
(performance/PRR & withdrawal queue)
Correlations are the real danger!
● Client bugs
● Geo/Provider risks
● (anti-correlation penalties/ incentives
in the future?)
Mitigations to Correlation Risks
Correlations are the real danger!
● Client bugs
● Geo/Provider risks
● (anti-correlation penalties/ incentives in the future?)
Client Diversity
(Consensus & Execution Layer)
Various cloud & bare-metal data
centers in different jurisdictions
Distributed Validators
(Sharded validator keys)
How to Optimize Rewards
Total ETH PRR: ~3.5 %
(avg. rewards in 2024)
Protocol rewards (~80%)
KPI: Validator Effectiveness Rating
From rated.network
● Bare metal nodes slightly higher performance
than cloud-based setups
● Great network connectivity and crypto-optimized
Tier III data centers around the world
● High performance Ethereum clients (default Prysm/Geth)
● Offering choices for all of the above for risk diversification
Transaction & MEV rewards (~20%)
KPI: Execution Layer rewards earned
vs. missed/orphaned slots
● Use MEV-boost
(~4x more EL rewards per block)
● Responsible latency optimization
(requires detailed monitoring)
● Connected to multiple relays
for maximum redundancy
(or limit to OFAC-compliant relays)
What to look for in a staking provider
● Risk mitigations & Reward optimizations as before
● Slashing insurance from node operator
→ or even reward guarantee
→ optional top-up insurance of collateral
e.g. via Quantstamp / Chainproof available!
● Strong company position
(history, balance sheet, profitability / runway)
→ e.g. growth in bear market?
● Mature processes & IT security
→ e.g. SOC 2 / ISO 27001 certification
● 24x7 support around the world
→ SLA guarantees
● Reporting & API integrations
→ e.g. multi-chain API & backend system integration
● Custodian integrations
● Compliance approach
→ e.g. connecting only OFAC-compliant relays reduces
rewards somewhat & requires monitoring
● Third-party metrics
(PRR, validator effectiveness, compliance)
→ e.g. via rated.network and Metrika
● Environmentally Conscious Infrastructure
→ reduce ESG footprint