Slashing remains a notable risk for Ethereum validators, despite its relative rarity. To help stakers safeguard their returns, crypto insurer Chainproof has launched a new insurance solution that not only protects against slashing losses but also guarantees a baseline yearly yield.
Slashing occurs when validators on Ethereum’s network are penalized by having a portion of their staked ETH taken away, usually due to accidental errors or software glitches rather than malicious activity. This mechanism is crucial for maintaining network integrity but introduces financial risks for stakers.
Chainproof’s new product, developed in partnership with IMA Financial Group, ensures that if slashing causes a validator’s annual yield to drop below the Composite Ether Staking Rate (CESR)—an industry benchmark representing average staking returns—Chainproof will cover the shortfall.
The CESR benchmark, created by CoinDesk Indices and CoinFund, reflects the mean annual yield generated by all Ethereum validators. Chris Perkins, President of CoinFund, highlighted the product’s significance, saying, “As staking gains prominence within ETFs and institutional products, protecting yield becomes vital for attracting serious investors.”
Currently, Ethereum staking offers roughly 3.5% annual rewards to token holders who lock their ETH to validate transactions and secure the network.
Understanding Slashing Risks
Since Ethereum’s staking inception in 2020, validators have faced 474 slashing incidents, according to beaconcha.in data. A notable case in 2023 involved Bitcoin Suisse, which suffered nearly $200,000 in losses after 100 validators were penalized.
While slashing losses tend to be smaller than damages from hacks or DeFi bugs, experts warn of the potential for a systemic event involving mass slashing.
Chainproof’s insurance differs from existing solutions like Nexus Mutual, which covers individual slashing incidents but does not guarantee total yield.
By reimbursing between 95% and 98% of the CESR yield over a one-year period, Chainproof offers stakers a guaranteed minimum income, automatically compensating for any yield shortfalls due to slashing.
Don Ho, Chainproof’s CEO and co-founder, emphasized that this product is key to enabling institutional adoption of Ethereum staking at scale.
The insurance will launch on June 1, initially targeting large validators and institutional staking providers.
Top staking companies including Blockdaemon, Pier One, Globalstake, and P2P have already committed to integrating Chainproof’s coverage into their services, bolstering confidence and security for their clients.
