Some form of insurance makes sense and should be seen as a waste of money:
- I agree with previous comments (@clesaege ) in that conceptually paying 25% of the DAO revenues for insurance is a reasonable expense to protect stETH holders in the case where there is a minor slashing event
- Insurance also improves attractiveness of stETH compared with other centralised staking solutions
- Clearly that cost is however dependent on the actual scope of cover provided, and the likelihood of a successful payout (depending on the provider)
- In the case of a more serious event, where a large proportion of the staked ETH was lost or un withdraw-able, as in the case of Stakehound, I don’t think there are any solutions available, and both in the case of self-insurance, and insurance via Unslashed, its not reasonable to expect to be able to insure against this for the amount of ETH staked with Lido
- Slashing likelihood so far after half a year of operation does indeed appear very low, and slashing from one of the many different validators would be socialised across the pool, leading to very small losses for each stETH held
Unslashed vs ‘Owning the Stack’:
- I am not sure there is evidence at this point that Lido could provide better more cost effective self-cover for users than Unslashed as a specialised provider is able to provide. It would depend on the parameters of the cover.
- However if the provided cover would be paid out in the form of the DAO’s supply of LDO, instead of its ETH, it could end up being more cost effective than alternative solutions. The cost of capital for LDO for the Lido DAO is currently very close to zero and there is a large available supply. This would resemble the AAVE style safety module as suggested by @gakonst
- I dont completely agree with the sentiment that the previous Unslashed provided cover was not sufficient in scope. I believe the only events we should be trying to protect against are minor slashing events (such as up to 5% of the funds staked with 1 validator). Larger black swan events do not seem realistic to insure against anyway.
- If using a self owned solution, paying out in LDO, I would expect the LDO price to take a extremely severe hit in the case where anything larger occurred than a minor slashing for 1 or 2 of the validators, which might significantly reduce the value of such cover.