Chainproof Combats Ethereum ‘Slashing’ Losses With Guaranteed Yearly Yields
Crypto insurer Chainproof announced a new product Wednesday that lets Ethereum stakers protect against slashing and guarantees them a minimum yearly yield.
Slashing, while rare, is a big concern for stakers. It’s a feature that keeps the validators who process transactions on Ethereum in check by taking away some of their tokens if they publish incorrect data. Most slashing happens due to code bugs in validator software or human error, not because validators try to attack or cheat the system.
Chainproof’s product, which involves a partnership with insurance broker IMA Financial Group, will top up stakers’ yield if slashing causes their returns to fall below the Composite Ether Staking Rate, or CESR, a benchmark rate that represents the mean, annualized staking yield generated by all Ethereum validators. CESR was created by CoinDesk Indices (a CoinDesk subsidiary) and CoinFund.
"As staking takes center stage across a new generation of ETFs and other institutional financial products, it will be imperative for institutions to insure that yield,” Chris Perkins, President of CoinFund, a partner behind the CESR benchmark, told CoinDesk.
Staking is the act of locking up tokens on a blockchain to help validate transactions, earning a reward from the network for the stakers. Ethereum stakers can earn around 3.5% annually.
Slashing risk
Since Ethereum started allowing users to stake in 2020, validators have been slashed 474 times, according to beaconcha.in data.
In one high-profile incident in 2023, Bitcoin Suisse, a company that provides staking services for institutional clients, lost almost $200,000 after 100 of its newly set up validators were slashed.
The financial damage caused by slashing on Ethereum is small compared to hacks or DeFi protocol bugs. Still, many crypto security researchers worry that an event where thousands of validators are simultaneously slashed is a serious risk.
Chainproof’s offering isn’t the first insurance product for Ethereum stakers.
Nexus Mutual, a crypto insurance alternative, offers coverage that pays out on each individual slashing incident and covers losses up to a predetermined amount. However, it does not guarantee yearly returns.
Chainproof’s insurance differs in that it will reimburse losses of 95% to 98% of the CESR benchmark rate over a one-year period. If their total earned staking rewards fall below this level, the policy automatically reimburses them, guaranteeing the amount of rewards they will receive.
It’s a small difference, but one that Chainproof’s customers say is needed for institutional crypto adoption at scale, Don Ho, the firm’s co-founder and CEO, told CoinDesk.
The firm will launch its staking coverage on June 1 with early access programs for large-scale validators and institutional staking providers.
Several companies involved in Ethereum staking, including Blockdaemon, Pier Two, Globalstake, and P2P, already plan to offer Chainproof’s coverage to their clients.
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