Moonkitt

Security ​

Protecting Your Stake from Hackers: Why Disabling Liquefy Matters ​

Imagine a scenario where hackers gain access to your wallet (perhaps through a malicious transaction or a stolen seed phrase). Without the "Liquefy" feature, which wasn't always available (and still isn't available on most chains), hackers would have to first unstake your tokens and wait for the usual unstaking period before stealing your staked assets. This delay gave you a crucial window to reach out to security experts like Cosmos Rescue for assistance.

However, with the "Liquefy" feature enabled, hackers can instantly liquefy your stake and transfer it away, leaving you with nothing in seconds. Disabling this feature acts as a safeguard against such attacks, preventing hackers from immediately draining your staked assets.

IMPORTANT

While disabling "Liquefy" is a powerful safeguard, it's still vulnerable to potential silent re-enabling by hackers. We recommend checking the status of the feature once a week. If it's been re-enabled without your knowledge, re-disable it immediately and contact Cosmos Rescue for assistance in recovering your stolen funds.

Liquid staking caps: Keeping the liquid staking under control ​

Limiting liquid staking ​

The Liquidity Staking Module (LSM) implements crucial safety measures to prevent excessive concentration of power in the hands of liquid staking providers. Here's how:

Global Liquid Staking Cap:

This cap limits the total amount of liquid staked tokens to a specific percentage of the total staked supply. For example, if 100 million tokens are currently staked, and the cap is set at 25%, then the maximum number of liquid staked tokens would be 25 million. This safeguard prevents liquid staking providers from collectively controlling more than a third of the staked tokens, a threshold that could potentially allow them to disrupt block production.

Individual Validator Cap:

An additional cap is set on each validator's portion of liquid staked shares. For instance, with a 50% cap, a validator cannot accept further liquid stakes once 50% of its delegated stake is already in liquid form. This prevents any single validator from accumulating an excessive amount of voting power through liquid staking. Technical Implementation:

The combined cap is enforced by limiting the total number of tokens that can be staked via interchain accounts and the number that can be tokenized using the LSM. Once this joint cap is reached, the LSM automatically prevents further staking through interchain accounts and tokenization of delegations. These safeguards ensure a more balanced and secure distribution of power within the network, mitigating the potential risks associated with excessive liquid staking.

Validator self-bond ​

To ensure responsible participation in liquid staking, validators seeking delegations from liquid staking providers are required to self-bond a certain amount of tokens. This "validator-bond" acts as a form of "skin in the game", incentivizing good behavior and strengthening their relationship with liquid staking providers.

Technical Mechanism:

  • The LSM tracks the validator-bond amount,
  • The maximum number of tokens a validator can receive from liquid staking providers is calculated by multiplying the validator-bond by a configurable "validator-bond factor". Initially set at 250, this factor can be adjusted through governance proposals,
  • With a factor of 250, for every 1 token a validator self-bonds, they become eligible to receive up to 250 tokens from liquid staking providers. The validator-bond only affects eligibility for liquid staking delegations and has no other impact.

Benefits and Implications:

  • Without self-bonding, validators cannot receive delegations from liquid staking providers,
  • Reaching the maximum delegation limit from liquid staking providers requires the validator to increase their self-bond to become eligible for further delegations.

This self-bonding mechanism promotes a more secure and balanced ecosystem by:

  • Discouraging malicious behavior by validators,
  • Enabling validators to negotiate their relationship with liquid staking providers.