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Ethereum staking platform Lido Finance has reported that its protocol experienced 20 slashing incidents due to a range of infrastructure and signer configuration problems linked to validators managed by Launchnodes.
This event took place on Oct. 11 at approximately 3:30 pm UTC, as stated by Launchnodes. In a post on X dated Oct. 11, Lido indicated that the validator nodes operated by Launchnodes are currently offline, and slashing activities have halted while the underlying issue is being examined.
The slashing occurred on the Ethereum blockchain, with Lido estimating the impact to be around 20 Ether (ETH), valued at $31,000, in addition to further penalties while the validators remain offline for troubleshooting, along with inactivity penalties that will accrue for the validators.
20 slashing incidents have been reported concerning validators managed by the @launchnodes node operators as part of the Lido protocol.
Launchnodes and DAO contributors are conducting an investigation.
The validators are offline, and slashing has stopped while the root cause is being explored.— Lido (@LidoFinance) October 11, 2023
Slashing refers to a mechanism where a validator violates a blockchain’s proof-of-stake consensus rules, which typically results in the validator being removed or a portion of the staked Ether they provided as collateral being slashed.
In a subsequent post hours later, Launchnodes stated that the slashing events were due to an infrastructure and signer configuration issue.
“We are investigating and taking measures to prevent any further incidents and restore full service,” the platform noted.
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Regarding the 5:30 pm CET incident involving Launchnodes’ validator nodes for the Lido protocol being slashed: The issue has been identified and is associated with an infrastructure and web3 signer configuration problem. We are investigating and taking steps to prevent any further occurrences and…
— Launchnodes (@launchnodes) October 11, 2023
Lido stated that stakers on the protocol are not impacted aside from a decrease in daily rewards, which will be reflected in the next rebase on Oct. 12.
The staking provider also confirmed that the Lido DAO has an insurance fund comprising 6,230 staked ETH, valued at $9.5 million, which will be utilized to alleviate the effects of the slashing — but it does not activate automatically by design.
Lido further mentioned that stETH holders will receive compensation once the “cover method” has been established, while Launchnodes has committed to reimbursing all losses incurred by Lido.
Related: Ethereum staking services agree to 22% limit of all validators
The liquid staking protocol explained that the process is not automatic because it is not feasible to determine the total losses in advance.
Lido remains the largest liquid staking protocol, with $13.8 billion in total value locked within its system, according to DefiLlama. The second largest is Rocket Pool, holding $1.7 billion.
Since the launch of the Beacon Chain on Dec. 1, 2020, only 226 validators (0.04% of all validators) in the Ethereum ecosystem have faced slashing up until late February 2023.
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