Contract Enforcement and Decentralized Consensus : The Case of Slashing

Many new blockchain applications rely on the “stake-and-slash” mechanism to align incentives. We point out that the design of such “contracting” problems can not be detached from the details of the decentralized consensus formation process. To illustrate our theoretical argument, we empirically investigate Ethereum 2.0, an ongoing upgrade of Ethereum to a proof-of-stake system. We find that in our sample more than 75% of Byzantine actions have dodged penalty (slashing), highlighting that slashing may not be as effective as widely believed