Penalty System for tips and mev

knoshua · 3 April 2022 08:39

Both the smoothing pool and the merge-readiness fork on github rely on a penalty system, on which no information has been shared.

Is this system already designed and implemented? Is this system part of the test on kiln? Will this system be part of the upcoming audits? If so, I think it would be extremely important to get the community input on this, before it is too late to react to feedback.

dabdab · 31 May 2022 01:29

For anyone new to the topic, the team has some analysis documented in the link below.

Seeing how close the merge (potentially) is, it’ll be good to hear about any updates (on decisions/implementation approach) that the team has on the proposal fee tips and (maybe later) mev.
@kane

github.com

rocket-pool/rocketpool-research/blob/master/Post Merge/Merge Implementation Research.md

# The Merge

After the merge, PoW will be abandoned and fees that were previously paid to PoW miners will instead go to the PoS validators who propose blocks. Validators will have the ability to configure the “coinbase” (called fee recipient post merge) of execution layer blocks which determines where the reward goes. 

In its current state, Rocket Pool has no way to enforce that the fee recipient field is set to the minipool address. And so, it is possible for validators to take 100% of the priority fees instead of sharing them with the rETH pool from which half of their validator stake was borrowed.

## Solution A - Penalty System w/ Rewards Sent to Minipool

Anticipating the merge, we included a “penalty” function within the smart contracts which, when enabled, would give the oDAO the power to impose penalties for node operators who do not comply with our requirement to share priority fees fairly. 

The penalty is defined as a percentage and is limited to a maximum value. Because of the uncertainty of MEV, the final max penalty value has left to a later date to be defined. The guardian can set it to any value and once we have determined what that value should be, the guardian role will be locked to prevent future changes.

In practice, it is expected that the penalty is never used. It’s mere existence should be enough to prevent node operators from taking priority fees for themselves.

### Contract Changes

Although we included the penalty feature, we purposefully left it as a bare minimum implementation to support the merge. We had to include it on launch because it needed to be built into the minipool delegate contract or we would run into a situation where people could refuse to upgrade their delegate contract and avoid the penalty process.

Only a single new contract needs to be introduced to support the merge. This new contract will be very similar to RocketNetworkBalances and RocketNetworkFees. It will allow oDAO members to vote on setting the penalty rate for individual minipools. Once majority (or super majority?) members vote on setting the penalty rate for a given minipool, setPenaltyRate will be called on RocketMinipoolPenalty which will record the rate for that minipool. On withdrawal, minipools already query this rate and withhold this percentage of the final balance from the node operator, sending it to the rETH users instead.

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knoshua · 6 June 2022 11:58

My understanding of this right now is: the smart contract changes that are currently in audit include RocketNetworkPenalties.sol.

This contract allows oDAO nodes to vote to apply a penalty to a specific minipool. The first two penalties will have no effect. Starting with the third, there will be a fixed penalty value that can be adjusted through a settings change. 51% of oDAO is necessary to reach consensus.

All existing minipools already have the logic to apply this penalty on exit built in. The guardian is able to change the maximum penalty rate. There is no way to apply a penalty in this way to the RPL collateral, this only touches ETH. The details of what constitutes a punishable offense and how the oDAO is checking for it will be part of the smart node. This smart contract is just the way to put it on chain.

kane · 16 June 2022 03:03

Please check out my new post MEV and Penalty System