Slashing of ATOM

This topic has been bothering me lately and I want somebody who knows better to provide me with some guidance. As I understand the situation, Jae is against liquid staked ATOM because in his mind ATOM is purely a staking token and if some validator misbehaviors the ATOM is going to be taken away and burned (ie slashed). This prospective penalty is what keeps validators in line. Simultaneously, Jae doesn’t seem to think that ATOM should have a stable value in fiat despite validators needing fiat to buy computer equipment and pay for electricity costs. With 7% to 20% inflation and a projected long term average of 14% vs fiat aggregate monetary supply increasing at about 4% on average this means that ATOM will be trending towards zero overtime losing about -10% per year in a slow rug decline as validators spend their ATOM rewards for fiat to stay in business. In addition to that we have the fiscal spending via the community pool tax of Ethan supporting 3 or 4 groups of coders to maintain the Cosmos SDK and develop other features. This is also a very significant source of selling pressure for the token. These 2 selling pressures have resulted in the ATOM token losing value this year…

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vixcontango: I want the people pushing the vision of stATOM as interchain money to address: • How ATOM slashing would affect all the financial instruments denominated in stATOM? There was a multi-month decentralized selection process from July-October to select the new Stride Cosmos Hub Host Chain validator set. The process started in July with applications open for community members to be part of the evaluation committee and with Cosmos Hub validators submitting applications. From all the applications received to be part of the evaluation council, Stride recommended 5 community members to the Cosmos Hub governance for approval: EffortCapital, Lexa, Damien from Simply Staking, CryptoCakir from Stake&Relax and Long from Notional. The Cosmos Hub governance approved this evaluation council. The coordination of this delegation program was done by RoboMcGobo. Once the evaluation council was approved by the Cosmos Hub governance, applications received by validators were filtered regarding the eligibility requirements which included a minimum of 99% uptime for the last 3 months. Then, the eligible top performant validators were scored by each evaluation council member…

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Thanks. That still sounds like a reputation (ie trust) based system for selecting validators. As a risk manager thinking about worst-case scenarios, I basically have to assume that these people can collude and perform an attack simultaneously and what ATOM is allocated to them will disappear. I know this type of attack doesn’t make sense - why would people lose a lot of money on their own - but people often times make decisions that don’t make sense. They make them for non-economic reasons, etc. If it is possible, I have to figure out how to deal with it. So I have to assume 25% of ATOM supply can go poof into thin air and then ATOM governance has to scramble to plug the hole (ie issue the missing ATOM) and preserve the integrity of the stATOM money based system.

vixcontango: That still sounds like a reputation (ie trust) based system for selecting validators. How is data regarding uptime of validators for the last three months a ‘trust/reputation’ metric? There is nothing subjective here, the whole point of blockchain tech is being trustless without trusted 3rd parties, all based on math and numbers, and the uptime metric is also data that you can see for yourself from several sources. vixcontango: I basically have to assume that these people can collude and perform an attack simultaneously and what ATOM is allocated to them will disappear vixcontango: So I have to assume 25% of ATOM supply can go poof into thin air Do you know that there are two possible slashings in the Cosmos Hub? • Downtime slashing: 0.01% slashed • Double sign slashing: 5% slashed See the parameters here for yourself: Mintscan From where are you getting these ideas that suddenly all the ATOM you have staked can ‘disappear’ or that 25% of ATOM supply can disappear? Going back to your question about slashing risks of stATOM. As I explained in my previous message, the downtime slashing risk of 0.01% is minimized…

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I don’t know the technical details of Cosmos slashing in their minutae and thank you for educating me.

I will maintain the position that some validators doing well for the past 3 months does not mean that they will do well for the next 3 months. I see validators coming in and out of various chains all the time. I don’t know - the guy gets hit by a bus and can’t maintain his servers anymore. Stuff happens. What also happens is collusion inside a trust based system. Fraud always involves the establishment of trust which can later be abused. As such I like crypto (and Bitcoin) because it is a zero-trust environment

The only thing I take away here is that if validators misbehave in the worst way, the penalty is 5% of the ATOM gets slashed. So if 25% of ATOM is liquid staked and every validator in that LST set misbehaves, then the hit is 1.25% of total ATOM (25% * 5%). This is much smaller amount of ATOM to print in this unlikely risk scenario, so I am happy. Thanks.

vixcontango:

if 25% of ATOM is liquid staked

The 25% global cap limit refers to staked ATOM, not total ATOM supply, so you did a mistake in your highly unlikely hypothetical scenario of 32 simultaneous double signs of the top performant validators. It should be 25%*66% → 16.5% of total amount of ATOM liquid staked, not 25% as you mentioned. Then 16.5%*5% → 0.8%

Even better. Thank you.