🙅Risk Socialization

Why Risk Socialization?

Validators in the Cosmos ecosystem can carry varying degrees of risk due to differences in hardware, software configurations, operational expertise, and independence. This variability could, in theory, result in unequal outcomes for delegators, depending on which validator they choose. To maintain qAsset fungibility—where each qAsset has the same value regardless of its associated validator—Quicksilver employs risk socialization.

• Shared Impact: If one validator faces a slashing event, all holders of that corresponding qAsset share the impact.

• Equal Distribution: Instead of burdening only those delegating to a problem validator, the protocol adjusts the Asset : qAsset redemption rate negatively, spreading the effect evenly among holders.

Minimizing Risk Through Decentralization

While slashing events affect the entire qAsset supply, their impact can be mitigated if the protocol’s delegations are sufficiently decentralized. By distributing stake across multiple validators:

• The failure or misbehavior of any single validator has a reduced overall impact.

• Users benefit from a more robust network, strengthening both security and reliability.

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Slashing Events and Redemption Rate Impact

Severity and Validator Size

The effect of a slashing event on the redemption rate depends on:

1. Type of Infraction

   • Double Sign: Typically a 5% slash.

   • Downtime: Often a 0.1% slash.

2. Validator’s Share of Total Stake

   • An “average” validator managing around 1% of the network’s total stake has a proportionate effect on the redemption rate.

Examples

• Double-Sign Slash (5%)

  • For a validator with 1% of the total supply, the redemption rate decreases by 0.05%.

• Downtime Slash (0.1%)

  • For the same validator (1% of total supply), the redemption rate drops by 0.001%.

These percentages reflect how slashing, though serious, is diluted among all qAsset holders in proportion to how much stake that validator manages.

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Protocol Response to Double-Sign Infractions

When a validator is tombstoned (permanently barred) after a double-sign offense, Quicksilver moves to preserve network health and maintain balanced validator distribution:

1. Redelegation

   • Subject to the redelegation limits of the Cosmos network, Quicksilver reassigns the tombstoned validator’s delegation to the next eligible validator in the active set.

2. Network Stability

   • This smooth transition minimizes disruption to users’ staked positions and helps maintain a secure and well-functioning network.

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Key Takeaways

1. Unified Risk Profile

   • By socializing risk, Quicksilver ensures that all qAsset holders share in potential losses, preserving the fungibility of qAssets.

2. Incentive for Decentralization

   • Broad validator distribution decreases the probability and severity of a single validator’s slash event impacting the protocol.

3. Adaptive Protocol Response

   • In the event of severe infractions like double-signing, Quicksilver redelegates to uphold network security and maintain a healthy validator set.

Through risk socialization, Quicksilver remains committed to equalizing staking outcomes for qAsset holders while supporting robust and diversified validator infrastructure across the Cosmos ecosystem.