How Do Fraud Proofs in Optimistic Rollups Work to Secure Funds?

Fraud proofs are a mechanism where a challenger can submit a proof to the Layer 1 chain demonstrating that an off-chain state transition was invalid. This happens during a designated 'challenge period' after a batch of transactions is posted.

If the fraud proof is successful, the invalid state is reverted, and the staker who submitted the incorrect state is penalized, usually by slashing their staked collateral. This economic incentive and penalty system ensures honest behavior.