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Lido Finance, the leading liquid staking protocol, faces a minimum penalty of 20 Ethereum before it can withdraw its ETH from validators that were slashed.
On Wednesday, 20 validators associated with Launchnodes, one of Lido’s node operators, got slashed from the Ethereum network, recording the largest number of validators slashed within a day this year.
According to an update by Lido, the initial loss to the protocol is around 20 ETH with “additional penalties” to be believed for inactivity before exiting the network.
Slashing is the process by which validators are forcibly removed from a proof-of-stake network for failing to fulfill their validator responsibilities properly, such as prolonged downtime.
It also involves a slashing penalty of 1/32 ETH for a maximum of 1 ETH per slashed validator that is deducted and burnt immediately. It can be followed by additional penalties.
These penalties are charged over the next 36 days before the validator can withdraw their staked amount, per Ethereum.org. Currently, a validator exit is only possible after November 17.
Launchnodes notified that the problem occurred because of “infrastructure and web3 signer configuration issues.”
The node operator told Decrypt that "all of Launchnodes' infrastructure is back up and fully operational, and Lido has been reimbursed in full for all losses incurred to date, ensuring that no stETH holder has suffered any loss."
Lido Finance did not immediately respond to Decrypt’s request for comment.
During the last major slashing event, when 12 validators were slashed at once on August 26, the loss in penalties to each validator was less than 1.10 ETH.
In response to such events, the Lido team also highlighted that the protocol has built a reserve “cover fund of approximately 6,200 ETH to help mitigate the slashing impact.”
The team is waiting to determine the extent of the losses, which it said cannot be known “ahead of time.”
The community will later decide whether the “Lido DAO cover fund should compensate affected holders.”
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