Penalty Burn

Penalty Burn is triggered by slashing events, which are penalties for protocol violations. Common offenses include:

• Double signing: Proposing or attesting to multiple blocks at the same height.
• Downtime (Liveness faults): Failing to perform validation duties for extended periods.
• Data availability failures: Withholding data in rollups or other data-availability networks. The slashed stake is not redistributed but is permanently destroyed.

This mechanism directly enhances network security by making attacks prohibitively expensive. It also impacts tokenomics by:

• Creating a deflationary pressure on the native token's supply.
• Increasing the cost of dishonesty for validators, as lost capital cannot be recovered.
• Aligning validator incentives with long-term network health over short-term gains.

Penalty Burn differs from traditional slashing models where penalized funds are redistributed to honest validators or a treasury. Key distinctions:

• Burn: Value is permanently removed (e.g., Ethereum's inactivity leak).
• Redistribution: Value is transferred (e.g., earlier Proof-of-Stake models). The burn model is often preferred for its simpler incentive alignment and direct supply impact, avoiding potential centralization from redistribution.

Penalty Burn is critical for optimistic rollups and other systems relying on fraud proofs.

• Sequencer/Proposer Bonds: Operators post collateral that can be burned if they submit invalid state transitions or withhold data.
• Data Availability Challenges: In validiums or similar designs, failure to provide requested data can result in a burn of the operator's stake. This ensures crypto-economic security for off-chain execution layers.

The burn amount is not always fixed. It can be calculated dynamically based on:

• Base Penalty: A minimum fixed amount for the offense type.
• Correlation Penalty: Scales with the total amount of stake slashed in a short time window (to punish coordinated attacks more severely).
• Inactivity Penalty: Increases quadratically with the duration of the non-finalization period. This graduated system ensures penalties are proportional to the threat posed to the network.

Solana implements penalty burn for double-signing (equivocation) and other critical faults. When a validator is slashed for malicious behavior, a portion of its stake is burned, permanently removing it from circulation. The remainder may be distributed to whistleblowers. This design aims to disincentivize attacks that could compromise network security and finality.

Polkadot employs a strict penalty burn model for severe offenses. For the highest-level faults, like equivocation or submitting invalid blocks, 100% of the slashed stake is burned. This total destruction creates a powerful economic deterrent against coordinated attacks on the relay chain or parachains. Lesser offenses may result in partial slashing, with a portion of funds burned.

In the Cosmos SDK, the default slashing module is configured to burn 100% of slashed tokens for double-signing offenses. For downtime (liveness) faults, a small, fixed percentage is typically burned. This burning mechanism, as opposed to redistribution, is chosen to maintain the total supply schedule and prevent the penalized stake from being recirculated to other validators, which could centralize power.

On Avalanche's Primary Network (P-Chain), validators stake AVAX to secure the platform. Penalties for misbehavior, such as failing validation or double-signing, result in a slash of the staked amount, which is burned. This reduces the validator's stake and permanently removes the AVAX from circulation, aligning validator incentives with honest participation to maintain the network's security and health.

The choice between burn and redistribution is a key protocol design decision.

• Burn (Deflationary Penalty): Permanently reduces token supply, potentially benefiting all holders proportionally. It avoids rewarding other validators with slashed funds, which could lead to centralization.
• Redistribution: Slashed funds are sent to the treasury or to honest validators as a reward. This can be seen as a direct reward for vigilance but may dilute the punitive impact on the attacker.

Slashing is the punitive removal and destruction (burning) of a validator's staked assets for provable malicious actions or liveness failures. It is the core security mechanism in Proof-of-Stake (PoS) blockchains.

• Purpose: To disincentivize attacks like double-signing or censorship.
• Mechanism: A portion of the validator's stake is permanently burned, reducing their influence.
• Example: In Ethereum, slashing can burn up to the validator's entire stake for severe offenses.

Proof-of-Stake (PoS) is a blockchain consensus mechanism where validators are chosen to create new blocks and secure the network based on the amount of cryptocurrency they "stake" as collateral.

• Security Model: Economic security replaces the computational work of Proof-of-Work.
• Validator Role: Stakers who propose/validate blocks, risking slashing for misbehavior.
• Key Feature: Enables mechanisms like Penalty Burn, where misbehavior directly reduces the attacker's economic stake.

Transaction Fee Burn (or "EIP-1559 burn") is a protocol-level process where a base portion of every transaction fee is permanently destroyed, reducing the token's total supply.

• Purpose: Creates deflationary pressure and aligns network security with usage.
• Contrast with Penalty Burn: Fee burn is a routine economic policy, while penalty burn is a punitive action for validator faults.
• Example: Ethereum burns billions of dollars worth of ETH annually through this mechanism.

Staking is the act of locking cryptocurrency in a smart contract to participate as a validator or delegator in a Proof-of-Stake blockchain, earning rewards for securing the network.

• Validator Staking: Requires significant capital and technical infrastructure to run a node.
• Delegated Staking: Allows users to delegate tokens to a validator, sharing rewards and slashing risks.
• Slashing Risk: Staked funds are subject to penalty burn for validator misbehavior, making stake selection critical.

Economic Security refers to the cost required to successfully attack a Proof-of-Stake blockchain, measured by the value of assets that would be destroyed (slashed) during an attack.

• Foundation: The security of PoS hinges on making attacks economically irrational.
• Penalty Burn's Role: Directly increases the attacker's cost by destroying their capital.
• Metric: Often expressed as the "Cost to Corrupt" the network, which must exceed potential gains.

A Liveness Fault occurs when a validator fails to perform its required duties, such as proposing or attesting to blocks when scheduled, causing network slowdowns or halts.

• Penalty: Often incurs an inactivity leak (gradual stake reduction) or a penalty burn, depending on the protocol.
• Severity: Distinguished from safety faults (like double-signing); penalties are typically less severe but still punitive.
• Example: A validator going offline during its assigned slot commits a liveness fault.