Grants Application
Project
What is the work being proposed?
This grant will be used for a research paper (currently in progress) that examines the topic of forced withdrawals. It outlines the different cryptographic methods, such as distributed validator technology (DVT), Shamir sharing, and verifiably encrypted signatures (VES), that could be used to enable Rocket Pool (RP) to utilize existing beacon chain rules to force the exit of a specific validator.
Is there any related work this builds off of?
Yes, multiple others, including different L1 protocols and researchers, have explored using these cryptographic principles for different purposes. This report will outline some approaches for using these principles to enable Rocket Pool to implement forced exits.
Will the results of this project be entirely open source ([MIT], [GPL], [Apache], [CC BY] license or similar)? If not, which parts will not be, why, and under what license will they be published?
Yes. The report will be published on my GitHub, indicating that it is released under the CC BY license. This allows others to distribute, remix, adapt, and build upon the material in any medium or format as long as attribution is given to the creator. The license allows for commercial use.
Benefits - enter N/A where appropriate
How does this help people looking to stake ETH for rETH?
Rocket Pool (RP) is currently facing limitations in its capacity to generate more rETH without incurring a premium for new purchasers. To grow its Total Value Locked (TVL) and rETH minted, the only viable solution is to lower the bonding requirement for Node Operators (NO) while maintaining the quality of the rETH APR and minimizing reputational risks. While the ideal solution for forced exits would be a core Ethereum protocol upgrade via an EIP to enable the withdrawal credential WC (i.e., the minipool contract) voluntary exiting permissions, it is likely to be years in development. It may not receive enough support and priority to be accepted as an upgrade to the core protocol.
Finding a secure and acceptable alternative to forced exits is crucial for Rocket Pool to offer ultra-low ether bonded (ULEB) minipools. While distributed validator technology (DVT) provides the ability to reduce the NO collateral, it has two major drawbacks. First, there is no practical solution for a NO participating in a DVT share to be able to exit a minipool, making recovery of NO initial deposits highly problematic. Second, since the validator rewards earned are shared evenly among the number of NOs in the DVT share, there is no leverage for gaining a larger NO commission.
How does this help rETH holders?
Rocket Pool (RP) is currently facing limitations in its capacity to generate more rETH without incurring a premium for new purchasers. Enabling forced exits would allow RP to offer 1 or 2 ETH ULEB pools, improving the risk for rETH holders even compared to half16 minipools.
Currently, several poorly-performing validators are generating negative returns for rETH holders. (Rocket Pool Explorer) One of them appears to have been abandoned since its creation. Forced exits would not only protect rETH holders but also save the NO from losing all of their deposited ETH and a significant amount of their RPL in cases where validators are abandoned or performing poorly.
How does this help people looking to run a Rocket Pool node for the first time?
The most significant barrier for a new Node Operator (NO) is the financial resources needed to form a validator deposit. At the time of this grant submission, the ETH and RPL required for a LEB8 are more than $16,000 (USD). As the price of ether increases, this cost will also increase proportionally.
By enabling the creation of Ultra-Low Ether Bonded (ULEB) pools, this report will help reduce this barrier, allowing more users of Ethereum the ability to validate the network using an RP minipool.
How does this help people already running a Rocket Pool node?
We will present various technical designs that allow the Rocket Pool (RP) oracle DAO (oDAO) to force-exit any malicious or abandoned validator without requiring the Node Operator (NO) to disclose their signing key to any oDAO member. This capability would enable RP to offer permissionless ultra-low-ether-bonded (ULEB) minipools and un-ether-bonded (UEB) minipools. Since this method utilizes established cryptographic primitives, development can proceed quickly using existing software code libraries. Existing NOs will benefit from being able to afford more ULEB minipools vs. LEB minipools.
How does this help the Rocket Pool community?
In early discussions, it was determined that Rocket Pool (RP) would need the ability to force-exit an underperforming or maliciously acting validator in order to offer ultra-low-ether-bonded (ULEB) minipools. The initial solution proposed to obtain this power was through an Ethereum Improvement Proposal (EIP) that would create the ability as a core Ethereum specification.
As an alternative, this whitepaper proposes several novel arrangements (methods) using existing cryptographic principles to enable the oracle DAO (oDAO) to trustlessly force-exit a minipool without requiring the Node Operator (NO) to disclose the validator’s signing key to any oDAO member.
How does this help RPL holders?
Unless revised by the pDAO, ULEBs will still require a 10% RPL bonding of the borrowed amount. For example, a ULEB2 would require 3 ETH worth of RPL to form the minipool. A NO who has 16 ETH could run 8 ULEB2s and would require 24 ETH worth of RPL. This would, in theory, create an extreme demand for the RPL token under the theory that “RPL is a token to unlock leverage.” Furthermore, the NO in the above case would earn a NO commission on 240 ETH (15 times their capital ETH investment).
What other non-RPL protocols, DAOs, projects, or individuals, would stand to benefit from this grant?
If released under a BY CC license, other staking protocols could use these fundamental methods also to provide forced exits to their node operators. This is seen as positive for the LSD industry and will help grow the decentralization of the Ethereum network.
Will the resulting project be open source?
Yes.
Team
Who is doing the work?
Ken Smith (NextBlock Solutions LLC; address: nextblock.eth)
What is the background of the person(s) doing the work? What experience do they have with such projects in the past?
"I have published two reports on Rocket Pool: “A Risk Analysis of Rocket Pool Low Ether Bonded (LEB) Minipools” in May 2022 and “Modeling the Profitability of the Rocket Pool Smoothing Pool” in August 2022. These reports were developed as part of my professional Ethereum-focused consulting company, NextBlock Solutions.
What is the breakdown of the proposed work, in terms of milestones and/or deadlines?
Feb 23: Complete the initial draft of the report incorporating feedback received to date.
Mar 23: Publicly release an initial report draft for comment and critique. Solicit input from others.
Apr 23: Incorporate all feedback and finalize the report.
How is the work being tested? Is testing included in the schedule?
N/A
How will the work be maintained after delivery?
The report and any supporting analysis will be maintained on my public GitHub.
Payment and Verification
What is the acceptance criteria?
The final report is published.
What is the proposed payment schedule for the grant? How much RPL and over what period of time is the applicant requesting?
500 RPL distributed over up to six award periods. This would fund the author’s work as well as any contributing authors.
How will the GMC verify that the worker’s deliveries match the proposed cadence?
A pre-print release of the paper will be made, allowing community members to comment on the draft and suggest edits or other topics for further analysis or critique.
What alternatives or options have been considered in order to save costs for the proposed project?
This number was based on discounted consultancy rates and the level of effort expended. I understand that the GMC may alter this remuneration depending on several factors. It may also be possible to narrow the scope of the research paper if there is already a planned implementation of forced exits envisioned by the dev team. In that case, the cost of this research paper could be reduced to focus exclusively on that methodology.
Conflict of Interest
Does the person or persons proposing the grant have any conflicts of interest to disclose? (Please disclose here if you are a member of the GMC or if any member of the GMC would benefit directly financially from the grant).
I have been approached by another staking protocol about performing risk assessments and have been invited as an initial node operator. Yes, I serve on the GMC.
Will the recipient of the grant, or any protocol or project in which the recipient has a vested interest (other than Rocket Pool), benefit financially if the grant is successful?
Yes. If the report is published under a BY CC license, other decentralized staking protocols will also be able to implement a similar forced-exit strategy, allowing them to offer ULEBs.