According to Blockworks, Obol Labs has entered into a partnership with crypto insurance platforms Relm and Chainproof to provide insurance for Ethereum stakers utilizing Obol’s distributed validator technology. This move could potentially attract risk-conscious institutions to participate in Obol’s distributed validators, provided the insurance is cost-effective.
Obol’s distributed validators (DVs) are designed to pave the way for a more decentralized Ethereum network. Since Ethereum transitioned to proof-of-stake, Ethereum blocks are created and transactions validated by a group of validators who stake ETH as collateral. At present, running a full Ethereum node requires 32 ETH, equivalent to over $100,000 at current rates.
Obol’s DVs allow validators to operate on more than one node, enabling community members to start validating transactions with less than 32 ETH. This could potentially decentralize Ethereum's pool of validators. Recently, Obol-enabled distributed validator module was activated on Ethereum mainnet by Lido, a liquid staking giant accused of centralizing the Ethereum staking space due to its large share.
Obol has also initiated collaboration with EigenLayer, a protocol focused on Ethereum restaking. With the introduction of insurance, a group of node operators running an Obol distributed validator can approach Relm or Chainproof for an insurance quote, the cost of which will depend on their setup.
The insurance aims to address the risk of slashing, a situation where the Ethereum network destroys some of a validator’s ETH for incorrectly processing transactions. This encourages accuracy in the blockchain, but the costs to validators can be high. Since December 2020, 431 validators have been slashed on the Ethereum network, as per Rated. Chainproof’s insurance will cover slashing, downtime losses, and private key compromise, while the coverage of Relm’s insurance remains unclear.
The success of the distributed validator insurance largely hinges on its cost, according to Max Sherwood, Obol Labs’ content and communications manager. If the insurance is economically viable, it could attract institutions with high risk and compliance standards to DV staking. Sherwood noted that while insurance has been too expensive for many players in the ecosystem, there are stakers who cannot afford to go without insurance, particularly institutional stakers.