Lesson Topics

• Staking
  • Solo staking
  • Pooled Staking
  • Staking as a service
  • Centralized staking
• Pooled staking
  • Rocketpool
  • Stakefish
  • Lido Finance

Protocol proposer problem

• Validators run the protocol, but do they run it honestly?
• System of rewards and penalties ensures compliance, but is it enough?

Validators

• To become a validator, you lock up 32 ETH in the deposit contract
• After activation, validator is called upon to perform consensus duties:
  • Block proposals: Make a block containing consensus and execution data
  • Attestations: Provide their view of the consensus, finalise blocks

Protocol rewards

• Protocol specifies rewards and penalties
• Rewards
  • Block reward for block proposal/correct voting
  • Transaction fees from execution payload
• Penalties: Inactivity penalty + Slashing for attributable consensus fault

Ethereum protocol

Ethereum protocol

Validators as block producers

• Protocol lets validators-as-block-producers consume resources
• Protocol constrains supply to guarantee low verification costs
• Validators produce blocks meeting demand for transactions with supply of resources

Proposer-agent problem

• Ethereum protocol entrusts its execution in the hands of validators.
• Turns out, validators themselves outsource some of their core functions!
• Let's see how

Block construction in Proof-of-Work

• Let searchers bid for bundle inclusion at top-of-block
• Auction between block proposer and searchers

Block construction in Proof-of-Stake

• In PoS, auction for top-of-block doesn’t work
• Trust model is different with solo validators...
• Idea: Validators receive full blocks from builders, builders bid for inclusion Searchers

Block building in PoS

Ethereum protocol

Risks of outsourcing: Censorship resistance

• Ethereum protocol: Include any and all transaction which pays the fee
• Protocol-Proposer problem: Individual proposers may censor transactions
• Large decentralisation of the validator set ⇒ Someone includes!

Risks of outsourcing: Censorship resistance

• Proposer-Builder problem: Builders may censor individual transactions, despite proposer’s preferences ⇒ Agency cost!
• Solution: Proposers require inclusion of some transaction list by their builders

Staking

• With respect to ETH2.0
  • Staking is the act of depositing 32 ETH to activate validator software.
  • As a validator you’ll be responsible for storing data, processing transactions, and adding new blocks to the blockchain.
  • This will keep Ethereum secure for everyone and earn you new ETH in the process.

Need for Staking

• Security
• Incentive
• Sustainability

Approaches to ETH staking

• Solo home staking
• Staking as a service
• Pooled Staking
• Centralized Exchanges

Solo home staking

• Run own Ethereum node and connect to Internet
• Deposit 32 ETH to beacon chain deposit contract directly
• Control of keys remains with node operator
• e.g. Rocketpool CLI, Vouch + Dirk, Avado, Stereum, Ethereum on Arm, eth-docker, DAppNode
  More Information

Staking as a service

• Similar to Solo staking, except
  • A third party will run Run node for you
• Signing keys needs to be uploaded to the operator
• e.g. BloxStaking, Abyss Finance, Kiln, Allnodes
• KeyGen : Wagyu, ethdo, Avado
  More Information

Pooled staking

• For users who do not feel comfortable staking 32 ETH.
• Many of these options include what is known as 'liquid staking' which involves an ERC-20 liquidity token that represents your staked ETH.
• Liquid staking is as simple as a token swap.
  • Users can hold their assets in their own wallet.
• Pooled staking is not native to the Ethereum network. Third parties are building these solutions, and they carry their own risks.

Liquid staking

• Validators are no longer principals, but agents of a set of tokenholders/depositors
• Lido, Rocketpool, diva

Restaking staking

• Validators may submit themselves to additional slashing conditions, in order to receive extra yield, e.g., secure more systems, taking second, third, fourth... mortgage on your PoS stake

Rollups

• Secured by L1, since they pay for data availability to the protocol
• They also require sequencers / builders to make their blocks

Ethereum protocol

Centralized exchanges

• If you are not yet comfortable holding ETH in your own wallet. CEX can be a fallback to allow you to earn some yield on your ETH holdings with minimal oversight or effort.

Centralized exchanges trade-offs

• centralized providers consolidate large pools of ETH to run large numbers of validators. This can be dangerous for the network and its users as it creates a large centralized target and point of failure, making the network more vulnerable to attack or bugs.

Ethereum wallets

More Readings

• Evaluating Staking Services
• Staking withdrawals
• Ethereum Staking Knowledge Base
• What is Rocket Pool
• staking withdrawals
• staking withdrawals example
• Gasper
• eth2 quick update no. 19 : Contract deployment, Genesis deposits, Bootstrap consensus
• The Genesis of a Beacon Chain
• The Future of MEV is SUAVE

References

• Staking with Ethereum

End