DAPPCON 2024: Does Ethereum Really Even Need Solo Stakers? - Nixo

Transcript

first of all this is going to be a rug this presentation isn't really about solo stakers it's about the whether or not ethereum is really sticking to its values so let me introduce myself first I'm nixo I'm the executive director of uh eaker we are a nonprofit we don't have a protocol we have nothing to Shell and we are first and foremost a community of stakers that is how I got involved in eaker uh we are committed to the health and decentralization of the validator set and that means creating new solo takers and supporting existing ones however we can with resources tooling community events and advocacy so we're going to go through some definitions first because in the

beginning there were solo sckers and there were professional operators and it's gotten a lot more muddy since then so uh we have solo stakers home stakers remote stakers managed stakers professional stakers liquid stakers um so these first five solo home remote managed and professional these are valid or these are operators who run validators whose indices they know but of those first five these first four are ones who are using their own capital in those validators whose indices they know um but I do want to point out that last category manage stakers don't actually control their config and so that means they're not choosing the clients that they run um and they're not

directly choosing whether or not they use uh Mev boost or if they build blocks locally so these first three categories are what I would call Independent operators and that's primarily who we'll be talking about here so solo sakers home sakers and remote stakers remote stakers um can be anybody who uh uses the cloud or uses some bare metal service but still controls the configuration of their validator uh so we will go through some characteristics of independent operators and I do want to uh preface this with I'm going to be focusing on the criticisms that we hear of solo stakers to genuinely address these uh these criticisms solo stakers are usually

difficult to organize they don't all come to e Staker they don't all have the same Community um some of them just set up their validator let it run turn on notifications and don't pay attention otherwise um some of them are super engaged uh they're inconsistently compliant with local tax laws and tax or local laws and tax regulations they have no investors they have no customers they have no one to answer to we have no idea if they're if they're adhering to their local jurisdictions they have no redundancy so when their validator goes offline they're Offline that nothing else flips on um and that's that's usually some some stakers do but most stakers do not um they often or some sometimes have

bad performance um and to uh illustrate this this is a graph from Tony's timing. pick and Kiln is one of the biggest professional operators and you can see that they usually so this is a graph from January to April of this year and you can see that they miss less than 1% of slots they're very good operators in contrast solo stakers and Rocket pool node operators and I'm using rocket pool node operators because they make up um a large percentage of independent operators they miss like 5% of slot which is significantly different they're poorer operators than than professional operators they react unpredictably to economic incentives they've been

referred to as irrational actors which means that um there's not necessarily a onetoone correlation or any sort of correlation when APR goes down they don't necessarily exit because of that APR and if APR went up which really doesn't happen um there's not necessarily a correlation of of Solo stakers or independent operators on the network um they occasionally have poor Key Management we see people come into East ster saying I lost my key I don't know how to read my seed or a lot of other things they again they don't have investors they don't have um customers and so some of them are just sort of yoloing this they don't have exit plans or death contingency plans um we have

seen that there are Genesis valid ators who have been active since the beacon chain launched and they've been offline for months or years and I suspect that some of those people have died um which is more it but um when you work for a team when you're a professional operator you have a whole team so if something happens to one of you it's not that big of a deal um but with somebody who's solo staking or um doing this and their their husband or wife doesn't know how to recover those funds it means that those those ones are just going to stay in the beacon chain for like 10 years till they get exited and then they're just going to sit in a wallet um and they need a lot of help troubleshooting this is why East Staker exists if you go into the East AER Discord or the East

ster subreddit you see that it's a really active community of people who need help all the time who are helping each other um we've got networking experts helping people who are really good at Linux but don't know anything about networking um so to so the the natural question after the is why the hell would we want these people running the consensus layer why would we want these people responsible for the security of ethereum and to answer that we have to talk about the fundamental value of ethereum and I'm curious if anyone here is willing to throw out like one sentence about what they think the fundamental value of ethereum is love

it love it okay okay um so let's start off from the basics there are no unilateral decisions to make any decisions any proposed changes in ethereum you have to go through this public governance process you have to do a bunch of research you have to have a bunch of discussion you have to propose an EIP you have to go through um the all core devs call you have to make sure that it's be going to be compatible with everything else that's going into ethereum that's every everything else that exists on ethereum and for this reason it doesn't tend to favor any one company over any other company because the devs wouldn't do a whole lot of work to favor one company over another when uh it doesn't benefit most of

ethereum um and there's this there's this aspect of trustless and immutability uh when you deploy a contract when you make a transaction once it's finalized you can be pretty sure that nothing's going to mess with it nobody's going to censor it so I looked online to see what other people were saying and I heard global settlement layer internet of value something software-based easy to audit non-reliance on human judgment and credible neutrality uh but the one I like best was from Paul Brody from uh who's the head of blockchain at ey which is one of the big four accounting firms and he says the entire value proposition of blockchain technology is built upon decentralization for the more

politically inclined they see it as censorship resistance for those of us in business the value proposition is about money Monopoly resistance we live in a world of extractive technology monopolies that we don't need anymore and I love that because it really it highlights ethereum as uh a framework for actual uh actual competition so why would we want Network why would we why would any network want independent operators because independent operators are an anti fragility measure for ethereum they're key for censorship resistance so if you have a couple big protocols running all of uh ethereum's consensus layer basically they can be cajoled they

can be um pressured to do certain things on the network but if you have just a few solo stakers even just a few small percentage of solo stakers who can't be influenced identified organized um uh who don't aren't necessarily following their jurisdictions like who live in a bunch of different jurisdictions uh it censorship that that um contributes to censorship resistance you only need a few who can build blocks locally they have an outsized impact on protecting the fundamental value of ethereum this is a snapshot from last November of consensus layer client diversity um I'm I'm going to assume

that you guys all know about client diversity and why client diversity is important but you can see at this snapshot most of the network used prism and Rocket pool had switched so far away from Prism that only 5% of their operators were using prism and they had switched to mostly Lighthouse teu and Nimbus um and they were responsible for independent operators in general were responsible for a lot of the pressure that made uh that made larger professional operators switch away from these majority clients um and they're more ideological than profit profit driven actors uh so this is why I say that this

presentation isn't actually about solo stakers it's about constantly questioning whether ethereum's fundamental value is still there um it's just how many how many independent operators we have is just an indicator of ethereum's actual decentralization um everything else is just talk um if we wanted the most efficient operators and the most efficient Network I would argue that we wouldn't use blockchain at all so how do we keep independent operators on the network um eaker partnered with Obel recently did a survey um last month uh that asked a bunch of stakers their opinions on um why they stake how long they're going to stake um how they feel

about staking what kinds of uh Hardware or software that they use it was a lot um but one of the things we asked was how have your views on uh on the value of solos taking for ethereum as a protocol changed since you first started staking and pretty uniformly people said uh that they think solo staking is as valuable for ethereum as they did when they first started staking but when I asked um how have your views on the value of solo staking for an individual change since then about a third said less favorable meaning that they feel a little salty and that they do feel like they're not getting uh that they're getting the short stick a little bit um and when I asked uh when we asked

how how well represented they feel in protocol research the answer was kind of a meh it was in the middle they didn't necessarily feel like they were getting most of the um attention that they deserve um despite this when I asked how long people uh plan to run a validator most said that they have no plans to exit or they'll exit for in an in real life goal uh there was an equal number who said that they'll exit under a specific yield and this is coming right after stuff like issuance debates and liquid staking protocols um being more profitable than uh than just running yourself especially with Hardware requirements um and

so uh so how do we keep the operators on the network despite this like saltiness that they're feeling um we need to represent their ual needs in their own words and research so that means um getting a lot more feedback from them encouraging them to speak up encouraging them to come to conferences um and not letting liquid staking protocols speak for them in research in defense of solo stakers the the financial incentive needs to be from solo stakers because if liquid staking protocols speak to defend solo stakers I don't believe them um economic competitiveness um I solo stakers are not they may be

ideological but they're staking because they make money staking they need to be economically competitive with all these other large protocols that are benefiting from the economy of scale the economy is of scale um and that means mitigating centralizing aspects of meev and Builder research or Builder dependence um that is more research lowering the financial barrier coupled with decreasing Hardware costs that's again more research stuff like fle trees um EIP 44 fours and uh research around single slot finality uh and extra incentives there's recently been a uh string of airdrops to solo stakers and that is awesome um

especially because there's it has incentivized uh this uh organization called State cat to put a little bit more effort into creating a solo Staker list something that's better at identifying solo stakers and and E stakers closely following that and hoping that um future protocols that do aird drops to solo stakers use that list um there's also smoothing pools they're smooth and smoothly which anybody can donate to um and we definitely um advocate for that as a way of incentivized solo staking if any protocol wants to um donate all they have to do is send to the um smoothing pool addresses you can talk to Lansky about this afterwards um but again sorry these are these are not permanent uh Solutions we

cannot rely on this to be the thing that incentivized solo staking because this is unpredictable and it really needs to be a protocol level change that incentivizes solo staking that changes the framework so that uh protocols that are benefiting from the economies of scales aren't the ones who are uh most profitable uh we need to onboard new stakers with education better ux lower Hardware requirements and better software and protocols better uh software and protocols that is all um above the protocol layer that's all really important eaker is doing its best to make sure that we support anybody who's working on that so if you are working on something that is maybe open source unincentivized doesn't take a cut

of um solo stakers uh uh if you're working on some tooling that helps but doesn't take a cut please reach out to us we would love to help you um and continued Tex technical support and again that's where East Acer comes in um vigilance for vectors of central Iz ation so that one is if if a protocol comes and says every solo taker should use us we're a great protocol we are some sort of layer that everybody can put on their validators we need to be very wary of that because that does create some vulnerability in a vector of centralization and we can't rely on their altruism if we continue to say oh solo stakers will be fine because

they're ideological and they're there because they want to support ethereum we will end up with no no solos takers um I encourage you to use this QR code or the link below it which is the same thing um to read this blog post that vitalic recently came out with um because he does talk about sort of this this was in response to the danrad pet uh danrad from the EF and Peter from gu having a discussion about like me and Builder centralization um and he really does a good job of talking about uh the current land ape how we got there the centralization issues and um how current research is um taking us away from that direction um that's it thank you very

much thank you nio uh is there any questions yeah please please please which one yeah please thank you for the talk uh you mentioned like one of the criticism of individual stakers like one one of them being that they don't have the contingency plans and secondly they are not always compliant with like local laws and taxes and stuff uh like my question is why do we care isn't this just their individual problem if they don't stake for some reason then yes be yes absolutely um I we don't care we don't care at all um but the thing is like a known entity in the US or some sort of country that um cares a lot about what the US is doing if they're a

know entity and the US wants them to comply with something um they can uh they can influence them um and we can't really tailor ethereum to to adhere to one jurisdiction because then we would have to tailor ethereum to adhere to all jurisdictions and that would be really insanely painful hello you've mentioned this list of solos takers and you even mentioned that it is somewhat better than the list prepared by rated yes can you name specific aspects why you believe it is better yes because the rated. network um list only goes up to 500,000 the index

500,000 um so the only update that they have made is basically people came in and said um I'm not on this list and they did one update and they do not plan on continuing to that Elias told me that he does not plan on continuing to maintain this list um whereas GLC has done a lot of work and he's also made um made an effort to exclude managed stakers so he has two lists one that um includes a one that's a floor one that's a ceiling and one includes a lot more um has a lot more bread of different types of stakers and one has um just a true list of independent operators and he is taking a lot more feedback and in general when I

go through um all of the conversation from Solo stakers in both the subreddit and the Discord they check both lists and most of them say that they are on state cast Stak cats list but most a lot there have been a lot of issues with rated. network and people were very upset with the last couple of uh air drops that happened because they were not on that [Laughter] list so I have two questions um recently there was a research posted about um negative yield on E I wanted to know your take on this about what negative yield on e oh oh um so the issurance changes yes that is one and other is do

you think risk taken could be a good incentive to keep node operators engaged um okay so issuance changes I know that it's um I know that it's very contentious but I'm actually uh very much supportive of issuance changes only because our current our current issuance regime um leads to um liquid staking protocols gaining more and more traction every every percent more that we have on the network is mostly liquid staking protocols um and part of that is because of reaking the whole reaking thing um and so uh I I do think that I I don't believe negative yield is ever going to be a good issue

or a good um solution because I do think that that will result in solo stakers being um adversely affected in a way that liquid staking protocols can put up with for longer um but the current issuance debate is around this intermediate Pro uh proposal that says let's just lower it and lower the incentive to stake while we figure out what the other things that will incentivize solo staking are like I really like vitalik's idea of um of correlated offline penalties um because that identifies um validators who are just doing it on their own because if a thousand validators go offline at once you know that it's probably um a larger

Staker and I don't even think it's a thousand um I think the threshold is much higher than that um but I think that there's it's a very good idea to have this intermediate stake rate that um that is lowered so that we don't have 90 80 or 90% stake by the time that we come up with this other issuance proposal because then we'll have 80 to 90% % arguing with the fact that they want um to keep this this structure that they're highly benefiting from oh and reaking I don't know a lot about reaking um all I do know is that the the um I know it's not live in its full capacity yet but I do know that I

have seen a huge influx to liquid staking because of that and actions speak louder than words and they say that they're supposed to um that they're supposed to be some benefit to solo sakers but solo stakers can't be abss so I don't really know how much it's going to help solo stakers especially in light of the fact that APR is going down because they're um incentivizing liquid staking so hard on igen lay well you know what I mean uh yeah thank you n uh is there any question no okay thank you thank you for the participation