Leading liquid staking protocol Lido Finance revealed on Wednesday that 20 ethereum validators related to one of its infrastructure partners had been removed from their eth holdings.
The company said its penalties already amount to 20.04 eth, which is currently worth $30,900.
What is “cut”?
In an update via Twitter, Lido said that the problematic validators, connected to the “enterprise-grade” ethereum node provider, Launcnodes, have already been disconnected.
The next day, Lido reclaimed have identified the “fundamental cause” of the outage, the “post mortem” of which will be published in the coming days. “Small details” are still being investigated.
“The Lido DAO has a hedge fund of ~6,200 stETH to help mitigate the impact of the drawdown, but it is not automatically activated,” Lido wrote. “In all previous cases, the damages have been covered by the corresponding operator or through this fund.”
The role of a validator is to propose new blocks for the ethereum blockchain and attest to the validity of blocks proposed by others. Validators are more likely to be chosen by the network for the above role if they stake more eth and as a result will be rewarded with more eth over time.
On the other hand, reduction occurs when an ethereum validator fails to adequately fulfill its responsibilities. An example could include proposing more than one block at the same network block height or other ways to contradict your own previous announcements to the network.
Cutting penalties
Reduced penalties may also apply to validators who remain inactive for extended periods. Lido estimated that your penalties will accumulate up to 23.06 eth before you can withdraw your eth from the shorted validators.
“Infrastructure downtime penalties and overall lost rewards (excluding EL rewards) amount to 5,663 eth (including trimmed validators).” Lido added.
Launchnodes has already disbursed 25,663 eth to compensate shorted stakers, and will contribute more eth if the final penalty accumulates beyond that.
Lido currently controls $13.7 billion worth of eth on behalf of its participants, according to DefiLlama – more than 25% of all value staked on ethereum.
Last month, bitcoin miner Marathon Digital mined an invalid bitcoin block, causing them to lose newly minted btc, the bitcoin-based equivalent of a drawdown event. Analysts later confirmed that the company had incorrectly ordered its transactions within the block.
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