Ethereum has undergone a rare slashing event recently, which may have broader implications for the coin and the industry in general. During the event, 39 validators were penalized under the protocol. These validators were all tied to the SSV Network, a distributed validator technology (DVT). It’s a protocol made to decentralize staking infrastructure and split validator keys across different operators.
In this article, we’ll discuss the event and its implications for Ethereum investors and those who increasingly rely on decentralized crypto institutions.
What is slashing?
Slashing is a mechanism built into the Ethereum protocol, and it serves as a protection against malicious behavior or negligence. For instance, double-signing, failing to validate transactions correctly, or causing issues with consent could trigger the slashing event. The process has been there since 2020, and it’s been used very rarely.
There are approximately 1.2 million active validators at this point, and around 500 of them have been slashed over the last five years. Therefore, the numbers show how rare such an event is, with the growing interest in cryptos that we’re facing.
The Changing Crypto Landscape
Cryptos turning towards decentralized services isn’t new; some of the best decentralized casinos have been around for years. These casinos allow players to make wagers online using cryptocurrencies and without providing personal data. The games work as they would in any other casino.
In recent years, the decentralized structure of crypto networks has found additional applications. This is most noticeable in the rise of decentralized crypto exchanges that are slowly taking over the “traditional” centralized ones. Ethereum has proven to be one of the best coins for these particular applications, surpassing Bitcoin in many ways, even though it remains significantly larger in scope.
What Caused the Slashing?
There were no protocol flaws; the issues that caused the slashing were operational. The founder of SSV, Alon Muroch, stated that the SSV software wasn’t compromised at any point. The issue was caused by the third-party staking providers using SSV. Combined with the lapses in infrastructure, these led to the slashing.
One set of the validators that were slashed was tied to Ankr, a liquid staking provider. It performed a maintenance operation and triggered the slashing proofs.
Another group of validators migrated from Allnodes about two months ago. It seems that a secondary validator setup caused duplicate signings and, therefore, started the penalty process.
Penalties and Scale
During this single event, 39 validators were slashed. It seems minor compared to the millions of validators we mentioned, but it’s the largest such event ever. Each of the validators immediately faced the penalty. There may also be “inactivity leaks,” which are extra penalties for validators that are inactive for a while.
For example, one validator with a stake of ~2,020 ETH lost about 0.3 ETH (~US$1,300 at the time) in this slashing.
SVV implementation wasn’t compromised in the process, but the fact that third parties were used played a key role.
Broader Implications for Ethereum and the Ecosystem
There are several implications that the industry as a whole will have to adapt to after the slashing.
Stakers will have to vet providers more carefully in the future. Providers manage infrastructure, maintain it, and deal with redundancy, backups, and configurations. Stakers will have to learn about these topics before choosing a provider.
Providers, on the other hand, also need to improve their practices and operations. This should include regular audits, backup systems, clear procedures for maintaining the systems, and a configuration migration plan. It’s also clear that preventing duplicate signings should be a priority.
SSV and similar protocols have come under heavy scrutiny after the event. SSV itself isn’t compromised, but the DVT design has been put to the test, and there’s a chance it won’t pass that test now, given the increased number of crypto users on decentralized networks.
The community as a whole is now aware of the issues that they may face in terms of security. That can be a double-edged sword, since there has been enthusiasm for crypto, and events such as these could ruin it, but they could also make investors better informed.
To Sum Up
Ethereum has experienced a slashing event tied to its SSV operators. It was the largest such event since Ethereum changed its operations in 2020. The reasons for the slash were mostly about human error and infrastructure elements, rather than problems with the code itself. However, it will affect how the code is run because the staker will need to learn more about the process to avoid similar events in the future.
Ethereum needs to assure its users that it’s safe and secure, especially now when there’s a growing interest in decentralized crypto institutions from the general public.
