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 predict 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:

Within OR: If a Panelist submits a prediction of 3.7% at the start of the period and the realized rate at settlement is 3.5%, the difference between the Panelist’s prediction and the realized rate is 0.2%. Given that the standard deviation during the period is 0.1%, the submission falls within three standard deviations (0.3%) of the realized rate. In this scenario, no slashing will occur as the deviation is within the acceptable range.

Outside OR: However, if a Panelist predicts 4.0% at the start of the period, the difference between their prediction and the actual rate would be 0.5%, exceeding three standard deviations (0.3%) of the realized rate. 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.