Slashing on ETH 2.0: A Detailed Guide on How StaFi Aims to Solve the Slashing Problem with ETH 2.0

Ethereum’s widespread adoption in recent years has resulted in higher transaction (gas) fees and lengthier transaction times (approx. 15 transactions per second). As more decentralized apps are projected to be established in the coming years, the Ethereum community is working to increase scalability. The transition from Proof-of-Work to Proof-of-Stake is the first step in that approach, with sharding (a structure of 64 smaller chains operating alongside the main chain) being the key to increased scalability and, as a result, adoption. Validators will be run on the beacon chain, and the Proof-of-Stake consensus mechanism will be implemented and adopted.

Since Ethereum’s dramatic move from the Proof of Work consensus to the launch of Eth 2.0 and the Beacon Chain, several slashing events have occured. There is an increasing concern about the slashing rules and how to avoid them. Slashing refers to the loss of staked ETH due to validator node disconnection or malicious conduct. The possibility of incurring cutting costs is one of the most well-known hazards of becoming a validator.

The harsh Slash rule in ETH 2.0 has resulted in a validator’s balance being slashed by 16 ETH. In extreme situations, the validator’s whole Staking principle may be confiscated. While StaFi’s rETH was supposed to be a solution to the Ethereum network’s exorbitant gas fees, this situation presents significant difficulty for rETH’s design from the validator’s standpoint. If the validator does not pay the deposit, he or she may feel free to act dishonestly, but if the deposit is too high, the willingness to participate in the rETH ecosystem will be harmed. StaFi intends to provide a solution to this problem to increase validators’ participation and ensure the network’s seamless operation.

What is the StaFi Protocol?

StaFi is the first DeFi system to allow staked assets to be liquidated. StaFi allows users to stake PoS tokens and obtain rTokens in exchange, which may be traded while still receiving staking rewards. On the StaFi Chain, FIS is the native token. Staking, paying transaction fees on the StaFi chain, minting, and redeeming rTokens are all requirements for FIS.

StaFi rETH was created to help control the Ethereum network’s surplus gas fee and to encourage participation in the ETH 2.0 decentralized staking protocol. However, ETH 2.0’s slashing rule has a significant impact on rETH solution. While Slashing is a more serious penalty that involves the burning of a certain quantity of validator funds, it’s also an instant exclusion from the current validator set. This can happen if a validator, for example, creates two beacon blocks in a single epoch or tries to attack or compromise the network. Although being slashed has major consequences, being consistent with the messages a validator has previously signed is a straightforward way to prevent getting slashed entirely.

What is the Probability of Being Slashed?

To participate in ETH 2.0 staking, validators must be familiar with the process and the risks of having their assets reduced. Because most validators are sincere and have no malevolent intent, the chances of Double Target Voting, Double Proposal, and Surround Voting are potentially quite low.

A careful observation of how ETH 2.0 nodes work in the real sense, we will notice that since ETH 2.0 kickstarted in December 1, 2020, the total number of validators went up to 38,933, with 27,837 active validators as of the 9th of December, 2020. According to Etherscan data, 14 validators were slashed, representing 0.04 percent of all validators and 0.05 percent of all active validators.

Out of ten thousand validators, approximately four to five will be slashed. If we assume a maximum slash loss per validator balance of 16 ETH and 10,000 validators deposit 320,000 ETH, the maximum amount of Slash fee will be 64 to 80 ETH.

Since then, hundreds of validators have already been fined, according to the BeaconChain scoreboard, putting them at the bottom of the list. While the slashed validator is at the bottom of the list, others are still operational, with the second-to-last validator earning -0.0267 ETH since its debut.

StaFi rETH’s Approach to the ETH 2.0 Slash Issue

The StaFi protocol has been working to find a solution to the slashing issue. The ETH2.0 Staking system has two forms of penalties. The first is Penalty, and the second is Slash:

• When a node fails to validate a block owing to disconnection, it incurs a penalty. The fine is not deducted from the user’s asset because it is modest.
• Slash occurs when a node engages in one of three harmful behaviors: double target voting, double proposal voting, or surround voting. The punishment is quite severe. Assets will be withdrawn promptly when the validator is slashed, and the minimum fine is 1 ETH (lowered when the beacon chain is live). The 32 ETH principal deposited by a validator may be halved in exceptional instances.

The Slash method in ETH2.0 was created to improve the chain’s security. Hence it is of utmost importance for StaFi to take it into account when designing rETH product solutions. It is critical to have an appropriate procedure in place to ensure that the user’s asset is protected. This is because the user’s funds are deposited into the fund pool via the StaFi contract and then delivered to the validator Pool contract via the contract algorithm. Unlike the typical Staker delegation option, the user delegated StaFi to select validators throughout the procedure.

Validator’s Deposit

Every time an Original Validator of ETH 2.0 starts running a node in the rETH solution, a specific amount of deposit is required. This deposit, together with the stakers’ funds, will be staked in the ETH 1.0 deposit contract. The deposit will be deducted when the validator is sliced, ensuring that a user’s money is not deducted due to the validator’s misconduct.

The maximum amount of Slash from the staked asset in the ETH 2.0 universe is 16 ETH if no more than one-third of validators are slashed at the same time. As a result, under normal circumstances, the theoretical validator deposit required by the StaFi rETH solution will be 16 ETH.

Many small and medium-sized nodes will be discouraged from validating, and their involvement is critical to the decentralization of the rETH solution. As a result, we must consider whether there is a method to make validator entry easier while maintaining security. While taking note of the existence of Slash problem in Ethereum 2.0 Staking, to address this challenge and further protect staker interests, the following will be implemented:

• Original Validators who join the rETH plan will be forced to put down a set amount of ETH as a deposit, which will be withdrawn anytime a slash happens to cover staker losses.
• Staking Contract will evaluate original validators’ past performance and will only match staking funds to original validators who have never been slashed.
• To spread risk and avoid a single point of failure, staking money will be linked with numerous Original Validators. As a result, even if a certain Original Validator is Slashed (which is exceedingly improbable), the staking cash pool will be unaffected.

Conclusion

StaFi’s objective is to use the rToken to give liquidity to all staked assets and unlock value, and they regard rETH as a critical component of rToken’s widespread adoption. As part of the mechanism to tackle the slashing problem, StaFi proposes a solution by establishing a Slash insurance pool. If a validator joins the insurance pool, the loss will be borne by the validator’s deposit if it is less than 8ETH, and if it is not, the insurance pool will bear it. The insurance pool is a crucial component of the rETH product’s design. Its goal is to assist validators in avoiding Slash risks, making rETH adoption easier.

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