Chainproof Combats Ethereum ‘Slashing’ Losses With Guaranteed Yearly Yields

In a move that aims to alleviate concerns for Ethereum stakers, crypto insurer Chainproof has announced a new product that will protect users against slashing losses and guarantee them a minimum yearly yield. Slashing, while rare, is a critical aspect of the Ethereum network's validation process that can have severe financial repercussions for stakers.

Slashing occurs when validators, who process transactions on the Ethereum network, publish incorrect data. This can happen due to code bugs in validator software or human error, rather than intentional attempts to cheat the system. As a result, some of the validators' tokens are taken away as punishment. According to beaconcha.in data, there have been 474 slashing incidents since Ethereum started allowing users to stake in 2020.

The financial impact of slashing on Ethereum can be significant, although it is often dwarfed by other security concerns such as hacks or DeFi protocol bugs. In one notable incident in 2023, Bitcoin Suisse lost almost $200,000 after 100 of its newly set up validators were slashed. This highlights the potential risks associated with staking on the Ethereum network.

Chainproof's new product is designed to mitigate these risks and provide users with a level of protection they can rely on. The firm has partnered with insurance broker IMA Financial Group to offer this coverage, which involves topping up stakers' yields if slashing causes their returns to fall below the Composite Ether Staking Rate (CESR). The CESR is a benchmark rate that represents the mean, annualized staking yield generated by all Ethereum validators.

"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," says Chris Perkins, President of CoinFund, a partner behind the CESR benchmark. "Chainproof's offering is a significant step towards providing much-needed protection for Ethereum stakers."

The insurance product offered by Chainproof differs from existing offerings in that it guarantees a minimum yearly yield. If stakers' total earned staking rewards fall below a certain threshold (95% to 98% of the CESR benchmark rate), 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," says Don Ho, the firm's co-founder and CEO. "We're committed to providing our customers with the best possible protection against slashing losses."

Chainproof's staking coverage will be launched on June 1st, with early access programs available for large-scale validators and institutional staking providers. Several companies involved in Ethereum staking, including Blockdaemon, Pier Two, Globalstake, and P2P, have already expressed interest in offering Chainproof's coverage to their clients.

For Ethereum stakers, this development is a significant relief, providing much-needed peace of mind as they navigate the world of staking. With Chainproof's new product, users can focus on earning rewards rather than worrying about potential slashing losses.