Lido Finance, one of the leaders in liquid staking on Ethereum, is going through a tricky period. Following the slashing of 20 validators associated with Launchnodes, the protocol is facing significant financial penalties, creating shockwaves across the industry.
Historic Ethereum slash affects 20 validators
Lido Finance, holding over 30% of all ETH in circulation, has just been confronted with a major slashing incident. A total of 20 of its validators have been evicted from the network. Ethereum in a single day, marking the biggest deletion of the year.
The protocol faces a minimum penalty of 20 ETH with additional penalties for inactivity before withdrawing from the network.
Slashing, although already a well-known concept in the blockchain world, systematically causes a stir within the community. It is a punitive procedure implemented when a validator on a proof-of-participation network fails to meet its obligations, such as prolonged unavailability.
This mechanism rigorously excludes validators from the network. This mechanism rigorously excludes validators from the network, imposes financial penalties and destroys part of the committed ETH, thus reinforcing the security of the blockchain against negligent or malicious acts.
Penalty of over 28 ETH for Launchnodes Node Operator
This incident resulted in the loss of more than one ether (ETH) per validator node. This amount is burnt even though they each have 32 ETH, the maximum that can be stacked per node on the Ethereum network. The total amount is 28,677 ETH, or around $44,000 at the current exchange rate. These sanctions are not instantaneous. According to Ethereum.org, these are applied over a period of up to 36 days, further limiting the validator’s ability to withdraw the amount bet. In the present case, a withdrawal is only possible after November 17, putting additional financial pressure on the players involved.
The origins of the problem can be attributed to ” infrastructure and Web3 signatory configuration problems”. Nevertheless, stakeholders quickly took steps to remedy the situation. Indeed, the node operator has declared that its entire infrastructure was now fully operational. In addition, Lido has been reimbursed in full for all losses incurred ensuring that no stETH holder suffered any loss.
Lido’s reaction to the crisis
At response to this crisis, Lido took proactive measures. Having anticipated such setbacks, the platform had set up a hedge fund of 6,200 ETH to minimize the financial consequences of such incidents. However, the exact amount of the losses remains uncertain for the time being.
Lido’s governance will have to make critical decisions regarding the use of the company’s hedge fund. Lido DAO hedge fund to potentially compensate holders of stETH affected by the incident.
This episode has prompted an urgent reconsideration of the safety and stability of DeFi infrastructures, particularly when faced with strict penalties, thus prompting a thorough rethinking of protection and response mechanisms in crisis situations.
Lido Finance’s management of this crisis is twofold: preserving the trust of its users while juggling substantial fines. This ability to navigate through the storm could well shape its trajectory in the future of Ethereum staking. If you want to know more, the Lido team has just published their post mortem analysis with full details.
As a journalist at Coinpri, I’ve been captivated by the world of bitcoin and blockchain since 2020. The decentralized aspect of Bitcoin particularly piqued my interest. Since then, I’ve been working constantly to spread my knowledge, hoping one day to see a world where everyone fully enjoys their financial freedom.
