Slashing is a mechanism built into many blockchain protocols to discourage validator misbehavior. It's designed by protocol creators to incentivize security, availability, and blockchain participation. While the specifics are defined within each protocol, the slashing mechanisms are similar: a predefined percentage or fixed amount of a validator’s tokens are lost when it behaves abnormally on the protocol.
Most protocols have two conditions that trigger slashing: validator downtime and double-signing. Typically, downtime results in a very small penalty (for example, 0.1% of tokens) whereas double-signing can incur a much higher penalty (for example, 5% of tokens). Some protocols have correlated staking, which could result in up to 100% of staked tokens being slashed. To better understand the risks of slashing, research the specific protocol you’re considering staking to.
Coinbase Cloud prioritizes double-signing prevention over downtime prevention because the penalty for double-signing is higher. We do this by ensuring that two signing nodes are not online simultaneously for any given customer’s cluster.
Bringing backup validators online when primary validators experience temporary issues introduces the risk of double-signing. To prevent this, Coinbase Cloud only allows one signing node in a Participate cluster to be online at any given time.
In the rare event of a cloud provider or regional signing infrastructure outage, Coinbase Cloud verifies that the primary validator cannot come back online before the signing node is moved to an available region.
We are in the process of implementing additional protections to enhance our service and further reduce the likelihood of a critical event. In short, while slashing is always a risk when participating on proof of stake networks, we do our best to help minimize impact for our customers.