The Pectra upgrade brings substantial changes to the staking economy of Ethereum. An overlooked and interesting consequence of these changes is the impact on slashing risk on Ethereum, which has been dramatically reduced with the introduction of Pectra.
The merge introduced slashing measures to prevent malicious validators from attacking the network. Slashing is triggered when a validator violates the Casper Finality Gadget (Casper FFG) rules or the LMD GHOST consensus. The former is needed to guarantee Ethereum’s economic finality, the latter is needed to solve the nothing-a-stake problem.
Precisely, validators are required to submit attestations which correctly identify the Casper FFG source, target and head of the chain. Violating the Casper FFG rule means that a validator makes two differing attestations for the same target checkpoint, or an attestation whose source and target votes "surround" those in another attestation from the same validator.
Additionally, if selected as a proposer, the validator would also be required to propose the block. Violating the LMD GHOST rules means that a validator proposes more than one distinct block at the same height, or attests to different head blocks, with the same source and target checkpoints.
In order to trigger a slashing event, the validator should try to attack the chain, or simply it’s running a misconfigured setup. The slashing amount corresponds to
where the numerator corresponds to the effective balance of a validator (i.e. the total amount of ETH a validator is staking that is effectively used within the consensus), while the denominator is a quotient dependent on the Beacon chain state.
Prior to Pectra, the effective balance of the node was 32 ETH, though the quotient historically changed. Precisely, the quotient was 128 post-merge, 64 in Altair, and 32 in Bellatrix. This 32 ETH quotient resulted in a slash that amounted to 1 ETH.
Once the validator is slashed, it is forced to enter the exit queue, and withdrawals are delayed by around 36 days (8192 epochs).
There is a second penalty that is applied, which corresponds to a correlation penalty - i.e. it is proportional to the stake that is committing the offence - and can be written as
where, in addition to the effective balance, we now also have the total stake that is committing an offence (the balance to be slashed) and the total stake. The slashing multiplier 3 was previously equal to 2 in Altair.
During the whole exit process, the validator also incurs additional penalties for missing attestations. Since the attestation penalties are very minimal compared to the previous one, for simplicity’s sake, we will focus on the major slash.
The Pectra upgrade, amongst many other things, changes the maximum effective balance of nodes from 32 ETH to 2048 ETH. With regards to slashing, the minimum slashing quotient is set to 4096, while the slashing multiplier remains the same as the Bellatrix one.
Another important point to note is that the ‘effective balance’, which was once a fixed number (32), is now variable. This provides node operators with a choice on how much ETH to allocate to each node; the amount of ETH allocated to each node will alter the slashing risk calculus. For example, if a validator chooses to continue with 32 ETH on their node, the slashing amount incurred will be 32/4096 = 0.008 ETH. In contrast, if they consolidate to the maximum limit of 2048 ETH, the slashing they incur will be significantly more, 2048/4096 = 0.5 ETH.
Also, for the correlation penalty, we have 3 * 32 / 1,069,029 = 0.00009 ETH for a small validator, and 3 * 2048 * 2048 / (32 * 1,069,029) = 0.36783 ETH for a validator with the max allowed effective balance. Here, 1,069,029 is the number of active validators at the time of writing.
In these risk calculations, we are primarily attributing slashing to misconfigurations. Hence, having more nodes does not exponentially scale up the incidence of slashing, as it is highly unlikely that in a 64-node setup, all 64 nodes are misconfigured.
The ideal set-up for any validator greatly depends on their priorities. The prime benefit of Pectra is that you can customize your set-up for different objectives. Below is a diagram of how the slashing amount scales as the ETH staked on that particular validator key increases. With 32 ETH nodes incurring a slashing penalty of 0.0078 ETH, and nodes with 2048 ETH on them incurring a slashing penalty of 0.5 ETH.
The only variable cost here is the cost of the infrastructure itself. But this isn’t substantial unless we are talking about many 1000s of validator keys. In most setups, one could run 100s of validator keys on a Kubernetes pod, and many pods could point at one beacon node. So, if optimized correctly, the infrastructure costs of running many 32 ETH validator keys might not be substantially higher than with fully consolidated sets.
A fair question to ask at this point would be, why consolidate at all? One strong advantage of partial consolidation is quick withdrawal. Prior to Pectra, all withdrawals happened on the consensus layer and required the exit of the 32 ETH validator, with the churn limit for such exits calculated as the maximum between the minimum churn limit per epoch (set by default to 4) and the number of active validators divided by 65,536. At the time of writing, this amounts to around 16 validators per epoch (i.e. 6m and 30s).
However, with Pectra you now have the option to partially withdraw funds from a validator and have the funds available to you instantly (within a few blocks). As opposed to exiting your validator, waiting for it to go through the exit queue, and waiting an additional 27h in withdrawal delay to get your ETH back. You can think of all balances above 32 ETH as balances that are available for instant unstaking.
This is now another option you have available with Pectra. For a higher slashing risk, you can have greatly increased liquidity on your staked ETH.
The Pectra upgrade transformed the ETH staking industry from a monolithic experience to one with a great degree of variability and choice. In the near future, validators and liquid staking providers will have bespoke offerings and vaults, allowing users to choose between maximizing ARR, maximizing liquidity, and minimizing staking risk. All of these different validation strategies will be directly linked to how node operators configure their setups and how effectively they maintain their ETH nodes.
In our previous article about Pectra, we mentioned that for our customers who want a 0x02 validator, Chorus One will implement a custom effective balance limit for 0x02 validators, set at 1910 ETH. This accounts for around 2 years of compounding rewards at a rate of 3.5% annualized, before reaching the 2048 ETH cap, allowing for sustained reward optimization.
Chorus One is actively researching various validation strategies now available with Pectra and is bringing this variety right to our delegators.
