To address these concerns, Solana is still working on a more robust slashing mechanism to improve the network’s security. What’s more, its staked value has far exceeded Ethereum’s already. This has driven an influx of staking activity on the network. More than $53.9 billion SOL is currently staked, rewarding stakers with a remarkable annualized return of 8.31%. There has been growing alarm that there is no real penalty, much less a detailed penalty structure, for the bad actors. In reaction to this, Solana Labs is currently kicking Solana 2.0 into production.

Current Slashing Limitations

Currently, Solana's slashing capabilities are limited. Despite their inclusion of such language, Solana Labs cannot have it both ways. Slashing is technically possible but not automatic.

the attacker’s assets can only be slashed by restarting the entire network. - Solana Labs CEO Anatoly Yakovenko

This often slow and cumbersome process leaves serious doubts regarding the network’s capacity to adequately penalize and deter bad actors and protect security. As one Ethereum researcher, Silk wrote, “the Solana network does not include a fail-safe slashing mechanism…” Because of this, staking fails to properly secure the network.

Proposed Solutions and Future Implementations

To overcome these limitations, Solana Labs CEO Anatoly Yakovenko has been making the case for a correlated slashing mechanism. It is this mechanism that will create the penalty. It will be calculated as a ratio of a validator’s malfunctioning stake to the median stake of all validators in the network.

he’s pushing for a "correlated slashing" mechanism, where the penalty would be equal to the square of the difference between a validator’s faulty stake in an epoch and the median network staked validator. - Solana Labs CEO Anatoly Yakovenko

Kyle Samani, Managing Partner at Multicoin Capital Kyle is bullish on Solana and thrilled with what’s in store. They hope to release a more robust slashing proposal later this year.

Impact on DeFi and Network Security

Solana has some of the most appealing staking rewards at 8.31%. These high rewards have come under fire for allegedly stunting the expansion of its burgeoning decentralized finance (DeFi) ecosystem. Multicoin Capital managing partner Tushar Jain suggests that the lucrative staking returns may be diverting users away from DeFi activities, as it is not rational to make an investment in something that produces a lower return than the "risk-free" investment.

The network has 1,243 validators securing the Solana network and 505,938 unique wallet holders staking SOL. In comparison, Ethereum has 1.06 million validators. The improved slashing mechanism will serve to further strengthen network security and help restore balance among the network’s many economic actors.