coreum

Prop 38: Reduce Downtime Slashing Penalty

Summary

This proposal reduces the validator downtime slashing penalty from 0.5% to 0.01%, bringing TX in line with established Cosmos chains and making staking more sustainable for both validators and delegators.

Motivation

TX's 0.5% downtime slash is significantly higher than the Cosmos ecosystem standard. Validators get slashed after missing 50% of blocks in a 34,000-block window (about 4.1 hours offline). In a low-inflation environment where most validators earn less than $100/month, a single downtime event can wipe out months of revenue and directly hit delegators.

Since the beginning of 2026, there have been 17 downtime slashing events on TX. 12 of those happened during two chain upgrade windows:

  • March 6 (v6.1.0 upgrade, Prop 36): 7 validators slashed
  • March 13: 5 validators slashed

Many validators were unable to complete the necessary updates within the 4.1-hour downtime window. Their delegators lost 0.5% of staked tokens each time through no fault of their own.

Using median validator stake (about 5M TX), each slash costs delegators roughly 25,000 TX. Across 17 events, delegators have lost an estimated 420,000+ TX (about $5,200 at current prices) to downtime slashing in 2026 alone.

Impact Example

Consider a validator with 10,000,000 TX staked. At current staking APR and 5% commission, this validator earns roughly 5,000 TX/month in commission:

Current 0.5% slash:

  • Slash impact: 50,000 TX after 4.1 hours of downtime
  • Time to reimburse delegators from commission: about 10 months

Proposed 0.01% slash:

  • Slash impact: 1,000 TX after 4.1 hours of downtime
  • Time to reimburse delegators from commission: less than 1 week

Validators are not required to reimburse delegators. But a 0.5% slash that costs almost 10 months of commission revenue makes it impossible for any validator to offer slash protection, even voluntarily. This directly affects delegator trust and retention.

Proposed Change

Message type: /cosmos.slashing.v1beta1.MsgUpdateParams

  • slash_fraction_downtime: 0.5% -> 0.01%

All other slashing parameters unchanged:

  • signed_blocks_window: 34,000
  • min_signed_per_window: 50%
  • downtime_jail_duration: 1 minute
  • slash_fraction_double_sign: 5%

Reducing to 0.01% still maintains a penalty for poor uptime. Validators still get jailed and must manually unjail. The slash remains a deterrent, just not a devastating one.

Cosmos Ecosystem Comparison

TX's 0.5% downtime slash is far above the standard. Most Cosmos chains use 0.01% or lower:

  • Cosmos Hub: 0.01%
  • Osmosis: 0.01%
  • Akash: 0.01%
  • Juno: 0.01%
  • Stargaze: 0.01%

Benefits

  • Reduced delegator risk in a low-reward environment
  • Validators can realistically offer slash protection
  • More time for validators to complete chain upgrades without punishing delegators
  • Alignment with Cosmos ecosystem standards
  • Encourages network participation and decentralization

What This Proposal Does NOT Change

  • Double-sign slashing (5%)
  • Jail mechanics (validators still get jailed for downtime)
  • Signed blocks window or minimum threshold
  • Validator commission structure

Final Note

17 downtime slashing events in 2026, most of them during chain upgrades, have cost delegators over 420,000 TX. The current 0.5% penalty is 50x higher than the Cosmos standard and makes no economic sense in a low-inflation environment. Reducing to 0.01% keeps the deterrent while protecting delegators from disproportionate losses.

Originally posted for discussion on https://t.me/TX_gov/109