@t1368w

Correlated slashing risk fundamentally changes the risk from diversifiable to systemic, drastically increasing the optimal multiplier. When risks are independent, operators can rely on the law of large numbers; the system's aggregate rewards are stable. When risks are correlated (e.g., due to a common client bug), a single event can slash a large fraction of operators simultaneously. This undiversifiable "tail risk" commands a much higher market risk premium. The multiplier must now compensate for the possibility of a network-wide catastrophe, not just an individual mistake. Modeling this requires shifting from a binomial distribution to a systemic risk model. The required multiplier under correlated risk can be an order of magnitude larger than under the independent risk assumption, as it protects against scenarios that threaten the entire staking ecosystem's viability at once.

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