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*Long, slightly opinionated, post following*
There is a discussion currently going on about if the ETH developers should include the option for consolidated validators to add a custom ceiling determining when the protocol will skim their excess rewards.
As a brief summary, EIP-7251 is coming in Pectra and it is going to allow users to consolidate ETH into a validator up to 2048 ETH. That is, you can have a validator staking 32-2048 ETH.
The question is how do users get their rewards if they can't/are unwilling to provide the max 2048 ETH into a single validator? They shouldn't be forced to either un-stake everything or wait until their balance reaches 2048 ETH.
There are two proposed options.
Allow users to set their own custom ceiling, such as 34.625 ETH. All ETH above that will be skimmed into their preferred Eth address. This is more work/complexity for the developers and staking pools. When asked about this option, staking pools don't really care if this is included or not. In my opinion this is best for solo validators because they don't have to spend any ETH to get their rewards.
Don't have this custom ceiling and make users sign a transaction indicating that they want to withdrawal, say, 1.257 ETH. As long as their balance remains above 32 ETH after their withdrawal and they pay a high enough fee they will be included into a block eventually. Each block will have a target of 2 user-initiated withdrawals, and there will be a fee that will increase/decrease depending on demand. This is detrimental to solo validators and smaller pools because paying a fee is disproportionately affects these smaller entities.
I am making the case for option 1. We must allow users to set a custom ceiling for the sake of solo validators.
WHY?
1. I think it's important for the Ethereum protocol to help solo validators as much as reasonably possible.
- Solo validators are the lifeblood of Ethereum. They are the most decentralized in terms of geography, internet provider, hardware, and client distribution. In my opinion, the solo validator community is the most aligned to Ethereum because they are choosing to forgo the safety and benefits of pooling their stake for what can be presumed decentralization's sake. Additionally, they retain their voting power and don't delegate it to these huge pools that can potentially be swayed to chase short-term profits to the long-term detriment of Ethereum.
2. The manual withdrawal mechanism can be spammed by large actors to the detriment of small actors whether it be solo validators or smaller competitor pools.
- If we do not have a custom ceiling, then partial rewards must be manually withdrawn as a new type of transaction. There would be a target of 2 withdrawals per block with a fee mechanism like EIP-1559. It would be a real shame if large pools 'nudged' smaller pools or solo validators to consolidate with the big pools by keeping the fee to withdraw high. Additionally, there are a lot of validators, so even honest withdrawals would keep that fee high.
- Finally, we know that pools are likely to use these new transactions a lot because they are not likely to consolidate their validators to the max 2048 for slashing protection. They are likely to consolidate maybe 10-20 validators so let's say 320 ETH. They would need to withdrawal ETH every time a user wanted their ETH back, or every time a consolidated validator needed to be brought back down to their 320 ETH comfort zone.
TL;DR I want to protect and encourage the solo validator as much as possible, and this extra option protects the solo validator's interest which outstrips the downside of added complexity. The cost of writing and testing the code only needs to be paid once, but protecting solo validators provides dividends to Ethereum for generations.
Here is a summary of the details as they stand. Let me know if you have any opinions on the matter. Maybe take it to twitter (X) and spread the word.
Solo validators are the lifeblood of Ethereum.
That is objectively not true. They don't have enough voting power to meaningfully influence consensus. With how few people are solo validating, they are providing very little additional security over any other solo node runner.
They align well with the principals of Ethereum, but are not a significant enough force to influence the network.
You make a valid point, but just because they make up a marginal percentage of the total staking base doesn't mean that they aren't the most important stakers. My blood makes up a marginal percentage of my body mass, but that doesn't negate the fact that it's vital to my well-being.
I say this, because I wish to remove roadblocks from solo stakers. Even if they are not that large of a percentage of the staking base, doesn't mean that we should abandon these very important users.
I concede that maybe my usage of the term life-blood isn't in keeping with the technical definition of the word, but I still stand by my point that solo stakers are vital to Ethereum, and we should be cognizant of any upgrades that may promote or hinder their continual existence.
How specifically are solo stakers vital to Ethereum?
I don't see what extra security the network gets from having solo stakers as 0.1% of the network vs 0.001% of the network.
Why are you even arguing here? What point are you trying to make? Unless you put some effort into your reply, I'm not responding anymore. You have put so little effort into your responses so far. We're having a dialog. You can sum up your argument as "Nuh-huuuuuh."
.1% of a million is 1,000 solo validators. .001% is TEN. There are WAY more solo stakers than that. Do you think that the network gets extra security if 6.5% or more are solo stakers? If we can't agree on that then we just can't agree. (6.5% is 65,000)
Yes, even if the number was 1% of stakers being solo stakers, I think that they are vital.
Do you know why Crypto was even started? Hint, it's not a get rich quick scheme that so many people seem to think nowadays. It was started as an alternative money that is not controlled by the rich and powerful elite. It's not controlled by the Fed, or swayed by politics. It's just freedom money. You want to spend your money here or there. Great. Go for it bud.
The beauty and spirit of Crypto is that as long as the consensus rules are being followed it can be largely owned by the rich and powerful elite, but they are following the same rules us plebs are following, so they don't control it. The second an entity whether it be Lido, BlackRock, or Joe-momma gobbles up enough ETH to control 66% of the active validator set, they have the option to control consensus, but even then, they might not necessarily exercise that option because it would destroy most, if not all, of their value. The day that happens, you better hope that you have some honest solo validators to run their own honest fork of Ethereum, because the spirit of Crypto would live on through this forked chain, and not the centralized chain that Lido or BlackRock controls. Such a fork is known as a social layer hard fork. Crypto has 0 value in my mind if it is not possible to run a solo validator, because it might as well be a password protected excel file at that point.
I stand with my original statement. Solo validators are vital.
The day that happens, you better hope that you have some honest solo validators to run their own honest fork of Ethereum, because the spirit of Crypto would live on through this forked chain, and not the centralized chain that Lido or BlackRock controls.
So that is the thing. You don't need validators to do that. All the value you have described is provided by node runners. Validators can't initiate a social hard fork anyway. They would just end up on by themselves. All node runners have to coordinate that.
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1mo
I believe you would still be liable because it is within your control to add a withdrawal address.
Does it work well as-is for tax purposes? My immediate thought when reading this was that setting a custom ceiling for withdrawals would allow me to defer income tax on rewards until that ceiling is hit since so long as the rewards are tied up, i technically don’t have dominion over those rewards? The tax hit this year was painful…especially when you don’t want to sell ETH to cover the tax liability.
User deleted comment
1mo
Yeah, fair. I’m grasping at straws. Filed my taxes today, so still butthurt. IRS interpretation and treatment of staking rewards is flawed to begin with.