Slashing Coverage

Three layers of slashing coverage are available for every participant staking through the Liquid Collective protocol

Slashing Coverage enables certain Liquid Collective partners to reimburse LsETH holders following a slashing incident. Liquid Collective's Slashing Coverage Program is included in the LsETH User Agreement; as such, participation in the program requires no further action than holding LsETH.

Liquid Collective's Slashing Coverage Program includes three layers of coverage: Nexus Mutual Coverage, the Slashing Coverage Treasury, and the Node Operator Commitment. The program covers both network-wide events—such as network outages—and node operator failures.

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Slashing Coverage Program Summary: 3 layers of coverage

You can find more details about Liquid Collective's Slashing Coverage Program in this blog post.

1. Nexus Mutual Coverage

Nexus Mutual is the leading provider of decentralized crypto-native protection, having secured billions of dollars in value held in smart contracts. Nexus Mutual’s bespoke Slashing Coverage for Liquid Collective is fully scalable coverage that dynamically adjusts with the protocol's assets on platform (AoP) and provides access to Nexus Mutual's slashing coverage directly from a user's custody account at platforms such as Coinbase or Bitcoin Suisse.

2. Slashing Coverage Treasury

Liquid Collective’s Slashing Coverage Treasury allocates a percentage of all network rewards to provide coverage for slashing coverage deductibles on network-wide slashing incidents. The Treasury continues to accrue network rewards unless deployed.

3. Node Operator Commitment

Node operators supporting Liquid Collective's active set provide coverage for deductibles, up to a cap, against slashing incidents and missed rewards incurred due to the fault of their infrastructure.

Slashing Coverage Fund

The Slashing Coverage Fund is in charge of injecting coverage funds into the system. In the case of a slashing event on one of the validators of the system, the Slashing Coverage Fund can be supplied with ETH to be used to repay slashing losses. When funds are sent to the Slashing Coverage Fund, the system will attempt to pull everything until the fund is empty.

The amount pulled is always capped by the reporting upper bound, just like the execution layer fees. This means that the supplied ETH will probably be injected in the system in multiple oracle report rounds.

Slashing Coverage Fund Contract

The Slashing Coverage Fund contract enables the Liquid Collective Slashing Coverage Program. The contract receives the funds to distribute for the slashing coverage, which are used to cover losses that may occur on the consensus layer due to slashing events. The contract acts as a temporary buffer for funds that can be pulled in case of a loss.

Fund Supply

Funds are supplied to the Slashing Coverage Fund contract when a qualified slashing event has occurred.

Computation and assignation of deductibles following a slashing incident are performed off-chain according to Liquid Collective's Slashing Coverage Program.

Partners assigned with a deductible can reimburse by posting the deductible (in ETH) to Liquid Collective's CoverageFund smart contract. ETH in the CoverageFund contract are periodically pulled into the system, accounted into the Conversion Rate, and eventually introduced into the staking flow.

Liquid Collective's CoverageFund contract is designed to only accept ETH from allowlisted accounts with a specific DONATOR permission.

When pulling funds from the CoverageFund contract the system does not mint any new LsETH and so the operation results in a replacement of any shortfalls that may have occurred from a slashing event, which applies to every LsETH holder.

Fund Distribution

• No fees are taken on the received funds

• The funds are entirely distributed to LsETH holders

• No new LsETH are minted

• Funds are distributed by increasing the Conversion Rate of LsETH

Funds from the CoverageFund contract are pulled into the system upon successful Oracle reports after Execution Layer fees have been pulled and rewards have been accounted, so no fee is charged on the cover funds pulled.

The amount pulled from the CoverageFund contract respects the Conversion Rate's variation bounds, so a slashing reimbursement cannot disrupt the Conversion Rate. On every Oracle report the system accounts for network rewards (CL + EL) then collects the gross fee, then attempts to pull funds from the CoverageFund contract up to the authorized maximum to remain within Conversion Rate's variation bounds.

In other words, if ETH is available in the contract, River will attempt to pull as much ETH as possible, up to the upper bound allowed by the Oracle contract. This smoothing mechanism means that it may take multiple Oracle cycles for Slashing Coverage Funds to be pulled entirely into the system, ensuring a gradual variation of the Conversion Rate.