Socialized Risk

At Quicksilver, we aim to maximize the returns users see. Although it might sound counterintuitive at first, socializing slashing is one of the ways we do this.

What is slashing?

In the same way staking mechanisms reward users who secure the blockchain, they also impose a penalty system know as ‘slashing’. While the technicalities vary from chain to chain, the purpose of slashing is to discourage intentional or unintentional misbehavior while encouraging node security by “slashing” a portion of a validator’s rewards whenever negative actions are detected.

Why does Quicksilver socialize risk?

Each validator on a network has its own hardware and software configurations, backup and restore processes, operating procedures, and risk appetites. In order for a given validator’s delegation to be fungible with another validator’s delegation, we must treat these delegations as equivalent. In order to do this, Quicksilver socializes risk. Risk socialization pools all assets staked via Quicksilver for a given asset (e.g. Atoms or Juno) and exposes the entire pool to any slashable event.

The rate at which native tokens can be exchanged for their qAsset counterpart is known as the redemption rate. Just as the auto-compounding of rewards is reflected in a positive movement of this rate (that is, a greater number of Atoms represent the qAtom supply), a slashable event for any validator that Quicksilver delegates to, constitutes a negative movement in this value.

This means that any slashing event on the Cosmos Hub is borne by all qAtom holders. Although the impact of such an event is spread across a larger number of users, it is done so to a far-reduced extent compared to the one borne by native delegation.

A validator can also be tombstoned (permanently removed from the validator set on the native zone) for a double-sign infraction, meaning a validator double-signed a block. In such cases, this validator’s delegation is moved to the validator that replaces it in the active validator set.

Example

In the event of a double-sign slash (5%) on a validator with 1% of the managed supply, the redemption rate would shift by just -0.05%. If this were a downtime slashing, meaning a validator is jailed for downtime (0.1%), the rate would shift by 0.0001%, which would hardly be noticeable.

As shown in the example, socializing risk actually minimizes risk impact on end users, allowing Quicksilver to enable stakeholders to take on less risk while still maximizing returns.

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