Lido Finance, an Ethereum staking protocol, recently experienced 20 slashing events caused by infrastructure and signer configuration issues from validators operated by Launchnodes. The incident occurred on October 11th at around 3:30 pm UTC, and Lido Finance immediately took action to address the issue.
In a post on Twitter, Lido Finance announced that the validators operated by Launchnodes were offline, and the slashing events had ceased while the root cause was being investigated. The slashing, which took place on the Ethereum blockchain, resulted in a projected impact of approximately 20 Ether (ETH), equivalent to $31,000. Additionally, the validators would face penalties for their offline status and inactivity.
Slashing is a process where a validator breaches a blockchain’s proof-of-stake consensus rules, leading to the removal of the validator or the slashing of a portion of their staked-Ether collateral. Launchnodes later revealed that the slashing events occurred due to an infrastructure and signer configuration issue. They assured users that they were actively investigating the issue and taking steps to prevent further occurrences.
Lido Finance reassured stakers on their protocol that they were not directly affected by the slashing events, except for a reduction in daily rewards that would be reflected in the upcoming rebase on October 12th. The protocol also revealed the existence of an insurance fund held by the Lido DAO, containing 6,230 staked-ETH worth $9.5 million, which could be used to mitigate the slashing impact. However, the fund does not trigger automatically and requires a decision on how to cover the losses.
Related Post
StETH holders, the token representing staked Ethereum on Lido, were promised compensation once the “cover method” had been determined. Launchnodes also pledged to reimburse Lido Finance for any losses incurred. These measures aimed to ensure that users’ investments were protected and to maintain trust in the protocol.
It is important to note that the liquid staking protocol offered by Lido Finance does not automate the compensation process, as it is impossible to predict the total losses in advance. Despite this incident, Lido Finance remains the largest liquid staking protocol, with a total value locked of $13.8 billion on its platform, according to DefiLlama. The next largest competitor, Rocket Pool, currently holds $1.7 billion in total value locked.
While the slashing events within the Lido protocol are concerning, they are relatively rare in the Ethereum ecosystem. Only 226 validators, accounting for 0.04% of all validators, have been slashed since the launch of the Beacon Chain in December 2020 until late February 2023. This suggests that the incident should not be seen as a systemic issue but rather an isolated incident that is being promptly addressed and mitigated.
In conclusion, Lido Finance experienced 20 slashing events due to infrastructure and signer configuration issues from validators operated by Launchnodes. The protocol took immediate action to investigate the root cause and address the issue, ensuring that stakers on the platform were not directly impacted. Measures such as the Lido DAO’s insurance fund and reimbursement pledges from Launchnodes were put in place to mitigate the slashing impact and compensate affected users. Despite this incident, Lido Finance remains the leading liquid staking protocol in terms of total value locked. It is important to recognize that slashing events are relatively uncommon in the Ethereum ecosystem, highlighting the overall stability and security of the protocol.
