Staking is an excellent way to earn yield on idle cryptoassets while helping secure their native network. However, like any investment decision or strategy, staking carries risk. One of those risks is slashing, which can result in a partial loss of staked assets. Slashing is rare, but when it occurs, it’s almost always the result of a validator misconfiguration or operator mistakes. This is why it’s crucial for stakers to be informed when choosing a staking provider.
This article breaks down what slashing is, the purpose it serves, and what stakers should look for in a provider in order to mitigate this risk.
What is slashing?
Slashing is a penalty mechanism built into many proof of stake (PoS) networks to discourage validator misbehavior or actions that could compromise network security or performance. While not all networks implement slashing, those that do use it to enforce protocol rules by imposing financial consequences if validators act against the network's interests. When a slashing condition is triggered, a predefined portion of the offending validator’s stake is confiscated. The amount slashed and how it’s handled (e.g., whether it’s burned, redistributed, or both) will depend on the network. In traditional finance, collateral is often posted to guarantee fulfilment of an obligation. If the party fails to perform (e.g., defaults on a loan or breaches a service contract), that collateral is seized. In PoS networks, a validator’s stake is a form of collateral, with slashing being akin to a (fractional) collateral liquidation event.
Slashing typically occurs under specific conditions that directly threaten a network's consensus or security. While conditions vary between networks, most implement slashing primarily for two offenses: double signing and extended validator downtime.
Double signing: This is arguably the most severe offense and the most widely implemented slashing condition across networks. Double signing occurs when a validator signs or proposes two conflicting blocks for the same block height or slot. This introduces immediate and severe inconsistencies, undermining the immutability of the ledger and potentially leading to chain forks. Double signing almost universally incurs the highest slashing penalties.
Extended downtime or inactivity: Validators are expected to be online and actively participate in the network’s consensus process. If a validator is offline for an extended period or consistently fails to perform its duties (proposing blocks, attesting to block validity), it can hinder the network's ability to finalize blocks efficiently. While prolonged downtime doesn’t always trigger direct slashing of the principal stake, it can sometimes (depending on the chain) result in "jailing" of the validator. Jailing, in this case, means the offending validator is kicked out of the active set, losing the opportunity to generate rewards (opportunity cost). Depending on the chain, jailing may be combined with a small slashing penalty.
How slashing impacts stakers
When stakers delegate their tokens to a validator (e.g., through a staking provider), they are effectively backing that validator and trusting it to reliably perform its consensus duties. If the validator is slashed, delegators share in the penalty, losing a portion of their stake. This is why when staking with a provider, choosing one with a strong track record of validator performance and an airtight security setup is crucial.
How Coinbase minimizes slashing risk
Protecting customer funds is our top priority at Coinbase. With our robust slashing protections, Coinbase validators have never been slashed on any of the networks we support. We have accomplished this by employing a multi-layered security model that’s built into our staking product. Because double signing is an almost universal slashing condition across networks, and the most severely penalized, double signing protection (DSP) is the core of our slashing prevention strategy. Some of our key prevention measures include:
Local DSP databases on each node: Our validator clients manage local anti-slashing databases which record every block and attestation signed by validators. Before a new block or attestation is signed, clients check their local database to ensure no conflicting actions have been recorded. This localized state tracking is a critical safeguard against double signing.
Infrastructure-level primitives: We use several Kubernetes primitives to ensure that multiple instances of a validator (and its keys) are never run simultaneously. This foundational layer is essential in preventing double signing. While the exact primitives used can differ between chains, these typically ensure that when updating a validator the previous version is fully deleted before its replacement is stood up, and that keys are never loaded on more than a single node.
Remote signing with high watermarks: For our Ethereum validators, rather than signing messages (e.g., block proposals, attestations) directly in the validator client, signing is delegated to a highly secure remote signer. This remote signer maintains a high watermark for each validator key (the key needed for signing), which is a record of the last valid block or attestation it successfully signed. When a new signing request comes in, the remote signer first checks this watermark. If the request is for a slot older than or conflicting with the recorded watermark, the signer rejects it, effectively preventing the validator from signing a contradictory message. This ensures that validator actions are always consistent and progressive, thereby protecting against double signing. Additionally, in order to sign messages on behalf of validators, the remote signer takes possession of validator private keys and stores them in a highly controlled, secure environment. This decoupling of validator private keys from the validator nodes themselves significantly enhances key security. This adds another layer of slashing prevention since it decreases the likelihood of an attacker being able to gain possession of private keys and force double signing or another slashable event.
Although our slashing protections primarily focus on DSP, we also have observability measures in place to avoid any downtime induced penalties. These include metrics and alerts. Metrics allow us to closely monitor what validators are doing at any given time. Our systems are configured so that if validators go down, they will be automatically restarted. However, if validators are brought down by an error that renders our systems unable to do this, alerts immediately notify us so we can solve the issue. This setup helps us maintain our 99% uptime guarantee. We also incorporate additional prevention measures on a per network basis, depending on each network’s specific slashing conditions.
Prevention is paramount
Our goal is to reduce slashing risk by putting robust slashing protection and layered security measures in place from the outset.
Interested in high-performance, certifiably secure staking? Get started today with Coinbase Prime.
Disclaimer
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