Proof-of-Stake (PoS) today is the most important consensus mechanism for new blockchains. One of the most compelling features is protocol staking. Token holders have the opportunity to participate in these blockchains (i.e., PoS networks) by delegating tokens in exchange for rewards to provide security. However, participants have to be aware of the risks associated with protocol staking. When participants are ready to stake tokens and earn rewards, they must pick a validator. The process of selecting a validator should not be taken lightly as validators have different levels of trust, transparency, security, and performance.
The “Safety over Liveness” approach is unique and effective to gain trust from token holders. Non-custodial staking providers like Figment adopt this approach to prevent slashing risks and potential losses of delegator tokens by optimizing uptime instead of maximizing it. In other words, being offline is better than having a double signing incident, as safety is preferred to liveness during turbulent events. As a matter of fact, the network uptime metric is potentially misleading to participants and newcomers. Stakers may think the higher the uptime, the higher the chances of generating rewards. However, given the different characteristics of each PoS network, the rewards performance strategy is nuanced and unique for each one. For example, having 99% uptime instead of 95% uptime on a PoS network like Ethereum is not necessarily better if it significantly increases the risk of slashing for a marginal increase in expected rewards. Furthermore, it is almost impossible to have more than 95% uptime on Solana because it requires that all other validators be online as well. The cost of liveness (i.e., maximizing uptime) is also dangerous for staking providers and token delegators because the potential penalties are greater than the cost of downtime, which is none to a certain point.
Staking providers that are experts in slashing mitigation and prevention tend to have little to no slashing incidents compared to other staking providers that focus solely on maximizing uptime, which has led to slashing incidents and loss of token holder funds.
Our data reiterates the importance of doing due diligence before selecting a validator, as 213 slashing events have occurred since May of this year.
In general, staking providers reputed for maximizing safety for staking have a deep and diverse expertise and turnkey staking offering. Through a coordinated team effort spanning customer success, engineering, legal, protocol, and security, staking providers like Figment offer the best staking experience by emphasizing safety over liveness. When the Merge occurred, all staking providers made decisive operational decisions around the activation of MEV rewards (see Figment’s MEV Policy: Supporting Neutral, Secure, and Open Solutions). The implementation of MEV-Boost was quite complex and had dependencies that imposed risks on staking providers’ infrastructure. There was always the possibility that it would introduce critical vulnerabilities and result in the loss of staking rewards.
In the case of Figment, we waited for a few hours and then slowly rolled out MEV-Boost once we were confident that the Merge was successful. A true demonstration of “Safety Over Liveness”!
Over time, it is inevitable that slashing will happen among all staking providers, despite having the best practices, given all of the complexities and events that cannot be anticipated. Now that Ethereum has become a proof-ofstake blockchain, the minimization of slashing risk is more important than ever. Figment has adopted Web3Signer, a remote signing solution, to ensure that we never sign two blocks simultaneously (i.e. double signing).
Furthermore, our fail-over process from detection to resolution, if a slashing were to occur, is the following:
Slashing events are inevitable. Therefore, staking providers have to develop the best practices to minimize downtime when a slashing event occurs. This comes down to monitoring and having deep expertise in PoS networks. It’s not about being perfect, but about being the best. To learn more about Figment’s validator performance, take a look at our most recents Ethereum validator performance reports: July 2022, August 2022, and September 2022. To date, Figment has an impeccable track record of 0 slashing incidents on over 60 PoS networks.