Executive summary

This proposal asks Kusama governance to authorize a one-time transfer of 36,246.528144881225 KSM to the Karura Homa staking subaccount: EQFY1VnjdYUSJ9oWoNgunPHeqLFooyPF3r6ZkTbCU5a6Eez

The transfer would restore the Treasury-directed portion of KSM removed from the shared backing of LKSM holders after six reported 50% slashes affected the same Homa nominator exposure to validator: DooaUKbyTV7j7GtNQdLmHMM7UW8THSr6x2nxt3jrPeWX6NV

The critical issue is that the offence was purely off-chain until the report was submitted on-chain. The report could be withheld and submitted much later, after the Karura validator insurance had been withdrawn. The same delay left too little time for Kusama governance to review or cancel the queued slash, effectively bypassing both safeguards.

Decision requested

Approve the following one-time Treasury-directed transfer under the applicable Kusama governance mechanism:

• Amount requested: 36,246.528144881225 KSM
• Beneficiary: Karura Homa staking subaccount
• Destination: EQFY1VnjdYUSJ9oWoNgunPHeqLFooyPF3r6ZkTbCU5a6Eez
• Purpose: Restore the KSM removed from the pooled backing of LKSM holders in the delayed-reporting incident described below

The transfer replenishes the shared Homa/LKSM backing. It is not paid to an individual LKSM holder, the validator operator, or an offence reporter.

Incident and accounting

The incident accounting attributes six separate 50% slash entries to the same Homa nominator exposure associated with the validator across the following eras:

The supplied chain-derived totals are:

• Total exposure: 80,547.840321958279 KSM
• Gross slash after runtime rounding: 40,273.920160979138 KSM
• Reporter reward at 10%: 4,027.392016097914 KSM
• Treasury-directed portion requested for restitution: 36,246.528144881225 KSM

Why the case warrants restitution

1. Repeated reports affected one pooled exposure

The incident evidence shows six 50% reports against the same Homa nominator exposure. The proposal relies on event-level accounting of the resulting slash amounts; it does not assume that six percentages can simply be added together.

2. Delayed off-chain reporting bypassed the practical review window

The offence evidence and report remained entirely off-chain until submission to Asset Hub. According to the incident timeline, the reports were withheld after the relevant offence eras had ended and submitted close to the end of the unapplied-slash period.

Normally, submitting a report queues the slash and leaves time for Kusama governance to review and cancel or reverse it. Here, delaying submission left nominators little practical opportunity to reduce exposure, gave governance insufficient time for meaningful review or cancellation, and effectively bypassed that safeguard.

3. The insurance backstop was unavailable

Karura validator insurance had been withdrawn before the delayed reports were submitted and processed. Because the report could be withheld off-chain, the offender could withdraw the insurance first and submit the report later, defeating the intended backstop.

4. The reporter incentive rewards delay

The current 10% reporter reward is economically misaligned. By reporting as late as possible, a reporter can allow a malicious validator to cause more damage, increasing the eventual slash and therefore the reporter's reward.

The desired behavior is the opposite: reports should be submitted as soon as possible to minimize harm. This is an economic bug that should be addressed.

5. Polkadot has addressed this failure mode

Polkadot has enabled required validator self-stake and disabled nominator slashing, addressing this exact class of risk. The Polkadot Developer Docs describe the resulting model as one in which only the validator's self-stake remains subject to slashing.

If Kusama had adopted a comparable model before this incident, the pooled LKSM backing would not have been directly exposed to the validator's slash in this form. Kusama has not adopted these changes and remains vulnerable to the same failure mode.