Slashing Mechanism

The slashing mechanism is designed to discourage collusion or malicious predictions by Panelists. Predictions that deviate significantly from the final fixing at the end of the observation period may incur penalties.

In a slashing event, Panelists and their respective Delegators are at risk of losing a portion or all of their stake if their predictions fall outside of the defined OR boundaries at the end of the observation period. When a Panelist is subject to slashing, their Delegators also face a corresponding percentage reduction in their delegated stake.

Example

Consider a scenario where a group of Panelists predicts a specific rate over a future 7-day period, with the Operator setting three standard deviations as the benchmark for slashing. Here's how different situations may unfold:

• In-Range: Let’s say a Panelist submits a prediction of 3.7% for the period and the realized rate is 3.5% while the standard deviation of panelist predictions is 0.1%. Then, the OR boundary can be computed as (the realized rate +/- three standard deviations), which is 3.2% and 3.8%. In this scenario, no slashing will occur as the prediction is within the acceptable range.

• Out-of-Range: However, if a Panelist predicts 4.0% for the period, in the same scenario, the Panelist’s prediction falls outside the three standard deviation boundary. In such a case, slashing of the Panelist’s stake, as well as their delegated stake, will be enforced according to the prescribed slashing schedule.

Safety Boundary: A safety boundary may be implemented to prevent panelists from being slashed when all submissions are highly accurate. For example, consider a case where the realized rate is 3.5% and the standard deviation of Panelist prediction is 0.02%, which is quite small. The OR boundary would be at 3.44% and 3.56%. If a safety boundary is drawn at the realized rate +/- 0.2%, (Range between 3.3% and 3.7%), Panelists whose submissions are within this range would not be penalized, even though some of their predictions fall outside the OR boundary.