Slashing remains a significant concern for Ethereum stakers despite its rarity. To address this risk, crypto insurance provider Chainproof unveiled a new product Wednesday designed to shield Ethereum validators from slashing penalties while guaranteeing a minimum annual return.
Slashing is a mechanism on the Ethereum network that penalizes validators—those responsible for processing transactions—by confiscating a portion of their staked tokens if they submit incorrect data. Most slashing events result from software bugs or human error rather than malicious intent.
Chainproof’s solution, developed in partnership with insurance broker IMA Financial Group, guarantees to top up stakers’ earnings if slashing causes their returns to fall below the Composite Ether Staking Rate (CESR). CESR is an industry benchmark that reflects the average annualized staking yield earned by all Ethereum validators, created by CoinDesk Indices and CoinFund.
Chris Perkins, President of CoinFund and a key contributor to the CESR benchmark, told CoinDesk, “As staking becomes central to new ETFs and institutional products, ensuring yield protection will be critical for large investors.”
Staking involves locking up tokens to support blockchain transaction validation in exchange for rewards. Ethereum staking currently yields approximately 3.5% annually.
Understanding Slashing Risks
Since Ethereum introduced staking in 2020, there have been 474 slashing incidents recorded on beaconcha.in. One notable event in 2023 saw Bitcoin Suisse lose nearly $200,000 after 100 of its newly launched validators were slashed.
While the financial impact of slashing is relatively minor compared to large-scale hacks or DeFi protocol exploits, experts warn that a widespread slashing event involving thousands of validators simultaneously could pose a serious systemic risk.
Chainproof’s insurance isn’t the first to cover slashing risk. Nexus Mutual offers coverage that pays out per individual slashing incident up to a capped amount but does not guarantee an overall yield.
Chainproof differentiates itself by guaranteeing stakers will receive between 95% and 98% of the CESR benchmark yield over a one-year period. If staking rewards dip below that threshold due to slashing, the policy automatically reimburses the difference, effectively securing the staker’s minimum return.
Don Ho, Chainproof’s co-founder and CEO, emphasized to CoinDesk that this guaranteed yield is a crucial innovation for scaling institutional adoption of crypto staking.
The new staking insurance product will officially launch on June 1, starting with early access for large validators and institutional staking service providers.
Several Ethereum staking firms, including Blockdaemon, Pier One, Globalstake, and P2P, have already committed to offering Chainproof’s coverage to their clients.
