Hi Mike,
Intro
There are significant challenges I see with ironing out implementation details for your proposal. More importantly, I think we have fundamental disagreements that can’t be resolved with implementation nuances.
I wanted to start by saying I was surprised to read your post and find such a strong emphasis of “centralization concerns” around rpl.rehab.
You did not mention any of them in your original post/follow up:
https://dao.rocketpool.net/t/1kxs-thoughts-and-feedback-on-the-2024-tokenomics-rework/3073
https://dao.rocketpool.net/t/1kxs-thoughts-and-feedback-on-the-2024-tokenomics-rework/3073/6
In searching the discord the first mention I saw from you that include “central” was just a few days ago on July 11th (except when you were responding to initial centralization concerns I brought up about 1kx’s proposal).
Your new post shows a drastic shift, from optimism around your proposal to pessimism of the existing proposal. The intro to your new post includes concerns around
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centralized takeover of the validator set
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reductions in staked RPL/downward pressure on price
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diminished protocol economic security/malicious actors controlling all the stake
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threatens to the stability/value/security/integrity of the entire governance system
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extreme centralization risk
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authors are nonetheless pushing forward with this risky and economically-flawed proposal
A quick search showed you mentioned “central” over 60 times in the new post, and it was the topic you were most eager to debate in the discord… Since it seems to be the most important topic to you now I’ll just focus on that one
Centralization concerns
1kx proposal
You address the topic the most directly here:
Our design includes two key components to help protect against centralization:
- Direct democracy from RPL holders
- pDAO delegation
An RPL holder who delegates to a protocol-aligned NO is effectively casting a vote for that NO. Their delegation will allow that NO to scale up their validator count faster and more cheaply than NOs who are not aligned with the protocol.
We expect delegates to factor in their individual financial returns when making delegation decisions but we also expect them to consider the charter values and overall health of the protocol.
The second mechanism, pDAO delegation, gives pDAO a mechanism to balance the economies of scale enjoyed by larger operators. pDAO can give home stakers a boost over the centralized entities, allowing protocol-aligned NOs to compete on an equal footing no matter how small they are.
This allows pDAO to directly counter the economies of scale problem that plagues all staking systems, in a way that does not negatively impact rETH APY.
The core challenge I see with your proposal is how can it be sybil resistant? You state that the pDAO can effectively vote to subsidize the growth of “protocol-aligned NOs”, but how should the DAO go about determining this? What’s to stop centralized entities from pretending to be solo stakers to attract delegation? It sounds like a nightmare to have our discord flooded with users seeking out delegations, and I see no way to differentiate between the “solo staker” types we really want, and those just pretending in order to acquire delegations to subsidize more validators.
You also hope to rely on the “direct democracy of RPL holders” to delegate based off of ethos (“charter values/health of protocol”, and also to determine “protocol aligned actors”), while also introducing a system with financial incentives that lead to quite the opposite. Under your proposal NO’s set their own commission, and the lower they set their commission the higher they can set their “delegate_share”. Under this model the centralized entities with “economies of scale” can afford to set lower NO commissions to pay larger amounts of RPL to their “delegate_shares”, in turn subsidizing further growth of their validator set at the expense of small NOs who can’t compete.
rpl.rehab proposal
The explicit goals under the rework is to make Rocket Pool the most attractive venue possible for solo/home staker types. We try to open the tent as wide as possible to allow the largest set of NOs to participate. This includes removing the RPL requirement. I don’t think RPL can be used as a good barometer for decentralization, since the most Ethereum-aligned node operators we could attract may be anonymous ETH-Only participants who migrate from solo staking to come join Rocket Pool (and they have often voiced the RPL requirement as the most important reason they have yet to join). Similarly, large entities can find ways to work around the costs of the RPL requirement (in ways more difficult for home stakers) through borrowing/lending or other whale marriages that are likely to accelerate under Houston. Another defense of the proposal is that enabling growth in the protocol protects it by creating a higher cost to attack it. As knoshua put it: “I can take over a protocol with 2 validators. I can’t take over a protocol with 200k validators”. I think the proposals you put forward add friction to the system, which stunts growth and deters solo/home-staker types from easily scaling. Centralized entities may likely game the system and jump through hoops more easily than home stakers could (the previous Aave borrowing/self-delegation approach being one such example). The end result is things also become much more complicated and much less predictable for the protocol/node operator and RPL valuation. For example:
Under your proposal every node could end up potentially having different: NO_shares, Delegate_shares, Recollateralisation_share, and Extra_rETH_shares. Even simple questions now have complicated answers:
- What is the rETH total commission? How much do NOs earn? How much does your delegated RPL earn? How much is protocol owned? The answer to all the previous questions is “it depends”, and “it depends on tons of moving variables across all of the validators”, and requires participants to be highly aware of pvp dynamics (instead of rpl.rehab where all validators pay out the same, all effective RPL earns the same, and surplus share revenue is a simple predictable value)
- Steering the entire protocol ship also becomes difficult due to all the different types of validators (vs Universal Adjustable values that apply to all validators). It would almost makes Rocket Pool more like separate stakewise vaults rather than a single protocol managed by the DAO.
The worst case scenario seems more likely to me: the protocol becomes unattractive to everyone (especially relative to competitors), and Rocket Pool fades into irrelevance.
Generally I think the most decentralized systems are the ones that have the lowest barrier to entry and cast the largest net. I think Ethereum is our best example we can attempt to follow. Ethereum strives to enable solo stakers (and there are plenty of them), but centralized actors will likely always have an edge in profitability. The strength and censorship resistance of the network lies in the long tail of small Node Operators and home stakers, and it is a remarkable success that Rocket Pool is a primary contributor to that validator set. THE key feature of Ethereum in my mind, is that it is permissionless and credibly neutral. There is a difference between centralization on top of the base layer due to things out of the base layer’s control (Ethereum: users staking through Coinbase, Rocket Pool: economies of scale concerns you brought up), vs the base layer picking and choosing which NOs get more validators/rewards (your solution). On Ethereum, the base layer treats all validators the same, and I think the same should be true for Rocket Pool. Ultimately I don’t think anyone should be picking who is right and wrong for Rocket Pool, this goes against the permissionless ethos Ethereum champions and Rocket Pool followed. I think at this point if you make a system attractive to solo/home stakers, it will be even more attractive to those with economies of scale. If this wasn’t true and was a trivial problem to solve (through delegation), then we should see other systems successfully implementing this, but I don’t know of any. There are other L1’s and LST’s that have tried delegation as a core feature and none of them are as decentralized as Ethereum. Similarly, if the only way to earn competitive rewards as a solo staker was attracting delegations, I think the entire system would be less valuable.
As Jasper put it: “Ultimately the question boils down to: Does a delegation system create a more decentralized network than raw economics”
I think the answer is no.