While slashing events are rare, their impact can be devastating and disproportionately affect smaller participants. Re² and Symbiotic propose a new solution: Slashing Insurance Vaults (SIVs). These are modular vaults where delegators pool capital and self-insure against slashing by separating risk across tranches.

Why Existing Insurance Falls Short

Slashing insurance today is either too centralized or too limited. Institutional players offer offchain coverage, but it requires KYC, large premiums, and custom contracts. Onchain mutual insurance pools exist, but they cover only a small portion of the ecosystem, often rely on slow governance, and aren’t scalable. The result is that most staked assets remain uninsured, especially in newer restaking environments.

A Proven Idea from Traditional Finance

The paper draws inspiration from traditional finance, particularly tranching in mortgage-backed securities and syndicates like Lloyd’s of London. These systems spread risk across layers: junior participants take first loss and receive higher premiums, while senior participants are protected unless losses are extreme. This idea maps well to staking: junior capital insures senior capital, and yield is redistributed accordingly.

Structure of a Slashing Insurance Vault

The vault accepts deposits into three layers: junior, mezzanine, and senior. Each is affected differently when a slashing event of size LL occurs:

• If L < Cj, the junior tranche absorbs all losses
• If Cj < L < Cj + Cm, juniors are wiped, and mezzanine covers the rest
• If L > Cj + Cm, losses flow into the senior tranche as well

Mathematically:

This structure ensures predictable and ordered loss-sharing among vault participants.

Premiums and Rewards: Risk Pricing

Each tranche receives rewards (called coupons) and pays premiums. The total premiums collected are redistributed among the tranches. If the coupon share for the junior tranche is Cj and its premium rate is pJ, then its expected return is:

This equation shows how the junior tranche earns more yield as compensation for higher risk, while the senior tranche earns less but is safer.

What Makes This Fair?

The model uses the concept of expected excess loss to determine fair pricing. If a tranche is expected to lose more than its proportional share of vault capital, it should be compensated with higher premiums. The fair premium formula is:

Where Delta i is the excess risk relative to the tranche’s capital weight.

Detecting Slashes: Oracle Infrastructure

For payouts to be triggered accurately, the vault must detect real slashing events. This can be done via on-chain logic or trusted oracles. When a slash is confirmed, the vault burns collateral from affected tranches and redistributes yield. Symbiotic’s Relay and Re²’s CCM are designed to support these functions across chains.

Slashing Behavior on Ethereum

To build the loss model, the authors use Ethereum’s slashing data. Most slashes follow a predictable structure:

Where bb is the validator’s balance, SS is recent total slashed ETH, and dd is the network-wide stake. While this is a simplification, it allows vault designers to estimate worst-case loss and price tranches accordingly.

Vault Extensions: What’s Next

Future upgrades to the vault structure may include:

• Undercollateralized tranches, increasing capital efficiency
• Reinsurance vaults, which pool tail risks across multiple SIVs
• Dynamic pricing models, using bonding curves or auctions
• LST integrations, using liquid restaking tokens as capital
• Cross-chain vaults, enabling interchain coverage with minimal trust

Each extension adds complexity but also improves risk-adjusted returns and coverage scale.

A Better Foundation for Risk in Staking

SIVs bring institutional-grade insurance logic to decentralized staking. They provide a permissionless and composable way to pool risk, redistribute rewards, and programmatically enforce coverage. By layering insurance on top of modular vaults, these systems create trust-minimized protection for networks, validators, and delegators alike.

Final Thoughts

This model is not a speculative idea, but a deployable framework. With careful calibration of premiums, slashing oracles, and governance parameters, Slashing Insurance Vaults can become the foundation for how restaking ecosystems manage capital risk. More than just an insurance layer, they represent a new economic primitive for on-chain security.

Review the full research below:

https://github.com/dias-henrique/Slashing-Insurance-Vaults/blob/main/CESIV.pdf