Penalty Function

Definition ∞ A Penalty Function is a mechanism within a protocol or system that imposes a disincentive, typically a financial loss, on participants who act maliciously or fail to meet specified conditions. This design encourages compliance with protocol rules and discourages undesirable behavior. It serves as a deterrent to maintain system integrity and fairness. This is a core component of many decentralized security models.
Context ∞ Penalty functions are fundamental to the security and stability of many proof-of-stake blockchains and decentralized finance protocols, deterring dishonest behavior such as double-spending or oracle manipulation. The design and calibration of these functions are critical for maintaining system integrity and are frequently discussed in the context of protocol upgrades and economic security models. Their effectiveness directly impacts network safety.