Chainproof Launches New Product That Guarantees Ethereum Stakers a Minimum Yearly Yield

Crypto insurer Chainproof announced a new product Wednesday that lets Ethereum stakers protect against slashing and guarantees them a minimum yearly yield.

Crypto insurer Chainproof is launching a product that will guarantee minimum yearly yields for Ethereum stakers and protect them from slashing, the firm announced Wednesday.

The offering, which involves a partnership with insurance broker IMA Financial Group, will top up stakers’ yield if slashing causes their returns to fall below the Composite Ether Staking Rate, or CESR.

CoinDesk Indices (a CoinDesk subsidiary) and CoinFund created CESR to serve as a benchmark rate that represents the mean, annualized staking yield generated by all Ethereum validators.

"As staking takes center stage across a new generation of ETFs and other institutional financial products, it will be imperative for institutions to insure that yield,” Chris Perkins, President of CoinFund and a partner behind the CESR benchmark, said in a statement.

Staking is the act of locking up tokens on a blockchain to help validate transactions, earning a reward from the network for the stakers. As of Wednesday, the annualized yield on the CESR is 3.5%.

Slashing risk

Since Ethereum started allowing users to stake in 2020, validators have been slashed 474 times, according to beaconcha.in data.

Slashing occurs when validators process transactions on the blockchain but publish incorrect data, leading to a penalty that slashes a portion of their tokens. It’s usually caused by bugs in validator software or human error, not by validators trying to attack or cheat the system.

In one incident earlier this year, Bitcoin Suisse, a company that provides staking services for institutional clients, lost almost $200,000 after 100 of its newly set up validators were slashed.

The financial damage caused by slashing is usually small compared to hacks or DeFi protocol bugs. Still, many crypto security researchers maintain that an event where thousands of validators are simultaneously slashed is a risk that shouldn't be ignored.

Chainproof isn't the first to provide insurance for Ethereum stakers. Nexus Mutual, a crypto insurance alternative, offers coverage that pays out on each individual slashing incident and covers losses up to a predetermined amount. However, it does not guarantee yearly returns.

Chainproof’s insurance will reimburse losses of 95% to 98% of the CESR benchmark rate over a one-year period. If their total earned staking rewards fall below this level, the policy will automatically reimburse them, guaranteeing the amount of rewards they will receive.

It’s a small difference, but one that's needed for institutional crypto adoption at scale, Don Ho, co-founder and CEO of Chainproof, said in an interview with CoinDesk.

"We're able to provide an A-rated carrier, which is the highest rating an insurance company can receive, to guarantee the pay-out on our policies," Ho added.

Chainproof will launch its staking coverage on June 1 with early access programs for large-scale validators and institutional staking providers.

Several companies involved in Ethereum staking, including Blockdaemon, Pier Two, Globalstake and P2P, already plan to offer Chainproof’s coverage to their clients.