Lido Finance Faces Steep Penalty for Withdrawing ETH from Slashed Validators

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Lido Finance Faces Steep Penalty for Withdrawing ETH from Slashed Validators

Lido Finance, a prominent liquid staking protocol, is obligated to pay a minimum penalty of 20 Ethereum before it can retrieve its ETH from validators that were recently slashed. In a noteworthy event, 20 validators associated with Launchnodes, a key node operator for Lido, were slashed from the Ethereum network, marking the highest number of validators being slashed in a single day this year.

As per an announcement by Lido, the initial loss incurred by the protocol amounts to roughly 20 ETH. There are anticipated "additional penalties" due to inactivity prior to exiting the network. Slashing refers to the process of forcefully removing validators from a proof-of-stake network when they fail to fulfill their responsibilities appropriately, notably through extended periods of downtime. This results in a slashing penalty of 1/32 ETH, up to a maximum of 1 ETH for each slashed validator, which is deducted and burned instantly. These penalties are followed by potential supplementary penalties.

According to Ethereum.org, these penalties are imposed over a period of 36 days, during which the validator is unable to withdraw their staked amount. Presently, a validator can only exit after November 17. Decrypt's request for comment did not receive an immediate response from both Launchnodes and Lido Finance.

During the previous major slashing incident on August 26, where 12 validators were slashed simultaneously, the penalty amount per validator was less than 1.10 ETH.