Fate of stETH and unbonded ETH after slashing

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I was discussing Lido and a question came up. What exactly happens with the non-lost ETH of a slashed validator? What happens to the corresponding stETH? I’ve looked at the docs (docs (dot) lido (dot) fi/guides/lido-tokens-integration-guide/#steth - I can’t post links yet) but this exact detail is not clarified.

In practice, does it play out as follows: (i) every stETH holder loses the same proportion of their stETH, (ii) the total lost stETH equal the total unbonded ETH, (iii) the slashed validator gets the non-lost ETH? (Terminology note: non-lost ETH + lost ETH = unbonded ETH)

More concretely, say Lido validator Victor stakes 32 ETH. At a later point in time there exist 128 stETH in total. Then Victor misbehave is slashed. In this case, the Ethereum protocol punishes 1 ETH and unbonds the remaining 31 ETH.

Assuming these, this is my understanding of what happens next, please correct me wherever I’m wrong: Lido burns 32 stETH (i.e., all accounts & smart contracts that own any amount of stETH lose 1/4th of it) and the Ethereum protocol gives 31 ETH to Victor.

Please consider this example in a vacuum: don’t consider any new staking, unstaking, rewards, orother slashings in parallel.

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stETH is a rebaseable token, which means that users’ balances are updated together with both staking rewards and penalties; see: Lido | Lido Docs

For instance, if the validator is slashed, the corresponding penalties are socialized among all of the stETH tokenholders, while unbonded ether still comes to the protocol when the validator is finally withdrawn from the beacon chain.

It comes from the fact that validators do not use their own stake; instead, stakers provide the stake via the protocol middleware.

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