Slashing
Basic Information
Slashing is a form of punishment used in Proof-of-Stake protocols, in which malicious or inactive validators can lose a percentage, or the totality of their money on stake.
More specifically, “malicious behavior” refers to double signing (when a validator signs 2 blocks at the same time). And “inactivity” refers to downtime (the amount of time in which a validator is not connected to the network).
The amount of the slashing and the maximum downtime are determined by each DeFi protocol.
PROs
- Discourages malicious behavior from validators
- Discourages inactivity from validators
- It gives Proof-of-Stake (PoS) and advantage over Proof-of-Work (PoW) in some attack scenarios
CONs
- In Nominated PoS, it can punish innocent nominators
- It cannot defend a project from government regulations
Conclusion
Slashing is a very good mechanism that discourages inactivity and wrongdoing by validators. Nevertheless, it could be not enough in some unlikely, but possible scenarios, in which an attacker with enough resources decides to spend a lot of money in order to perform the attack.
Analyst opinion
The best part about slashing is that, under certain conditions, it gives Proof-of-Stake protocols an advantage over Proof-of-Work - punishment. In Proof-of-Work protocols, there are only incentives to hold and mine, but there is no way to punish wrongdoing. Any attackers that attempt, for example, a 51% attack, despite being very costly, they still cannot be punished in any direct way.
On the contrary, if attackers want to perform an attack on a DeFi project, they will need governance power, or being big validators, and the only way to achieve one of the two is by staking a lot of money. This way, the more capable an user is of performing an attack, the more money the user can lose.
The only downside is that some attackers might be politically motivated, and might be willing to lose a lot of money on stake, as long as they can inflict enough damage to the currency. For example, a government could buy a lot of tokens, put them on stake, and perform an attack without worrying about the economic consequences, because they might want to destroy the ecosystem, whatever the cost.
Nevertheless, the bigger the market cap of the Proof-of-Stake based currency, the more unlikely an attack is, because the cost might be extremely high.
Analyst
.png)