Slashing Fund
A portion of returns earned by validators is allocated towards enhancing yields and cushioning the slashing fund
Slashing is a penalty imposed on validators who act in a malicious or harmful manner on the network. Validators can lose a portion of their staked funds as a result of slashing. In the case of Sui network, validators could be slashed for the reasons below:
Double Signing: If a validator signs two different blocks at the same height, or two different votes for the same block, this is considered a double signing offence and can result in a slash.
Downtime: Validators are expected to be online and actively participating in the network. If a validator is offline for a certain period of time (known as an "inactivity leak"), their staked funds may be penalized.
Invalid Blocks: If a validator proposes an invalid block, their staked funds may be penalized. An invalid block is one that does not meet the network's consensus rules.
Invalid Messages: Validators may also be slashed if they send invalid messages to the network. This includes messages that do not conform to the network's message format or messages that contain incorrect information.
Validators can also receive boosted or slashed rewards in reference to the gas pricing mechanism on the Sui Network https://docs.sui.io/devnet/learn/tokenomics/gas-pricing
Slashed rewards event is defined as when the tally rule score of a particular validator is below 1, with 1 being the benchmark for non-slashed rewards.
Smoove uses a distributed set of validators to ensure decentralization and security of the network, by delegating across a large number of validator, the risk of getting slashed can increase due to a phenomenon known as "diversification risk". As the number of validators increases, it can become more difficult to monitor their performance and stay on top of any potential issues, increasing the risk of getting slashed.
To protect users from such exposure, Smoove will dedicate a portion of our revenue from the validator’s rewards to the slashing fund. In addition, the team will potentially allocate a portion of $SMOOVE tokens that serve as rewards for users who contribute to the slashing fund.
Probability of Slashing = Total Slashed/ Total Staked on chain
Yield per Epoch = [(Total Funds Insured X Probability of Slashing )/Total Deposit] + Risk Premium
For example, suppose the total amount of slashing penalties over a year is $100,000, and the total staked is $1,000,000. The likelihood of slashing is estimated to be 5%. The Total Funds Insured is assumed to be $500,000 and the pool size to be $250,000.
Plugging these values into the formula yields:
Yield = 500,000 x 0.05/250000 = 0.1 or 10%
Therefore, depositors who contribute to the slashing fund could expect to receive a yield of 10% over the course of the year. This figure changes every epoch with the module taking a linear average of all the epochs in concern. However, it's important to note that the actual yield may vary based on a variety of factors, including changes in the slashing penalty structure, fluctuations in the price of the underlying asset, and changes in market conditions.
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