I’ve spent the better part of the day further discussing this and would like to add a couple more points to my argument.
Imagine that you came to the protocol in May with the hypothetical motivation of maximizing rETH market share (because you are aligned with RP’s goal of decentralizing the LST space). You have approximately 6,300 Eth.
To maximize rETH capacity, you purchase 1450 Eth worth of RPL, or at the time, about 66,000 RPL, and stake it. You create 605 LEB8s.
In May, you have:
- 605 LEB8s
- 1450 Eth worth of RPL at a ratio around 0.022
- 4840 Eth bonded
- 14520 Eth-of-rETH capacity created
- 128 voting power if <10% is enfranchised
- 128 voting power if <10% is not enfranchised
- A collateral ratio of borrowed Eth around 10%
- Yearly RPL rewards of around 116 Eth (rounded to 8% APR)
In October, because of the market, you have:
- 605 LEB8s
- 817 Eth worth of RPL at the ratio of 0.01238, down to 56% of principal
- 4840 Eth bonded
- 14520 Eth-of-rETH capacity created
- 128 voting power if <10% is enfranchised
- 0 voting power if <10% is not enfranchised
- A collateral ratio of borrowed Eth around 5.6%
- Yearly RPL rewards of 0 Eth
(differences bolded)
- Your investment in this protocol, and your alignment towards its growth has cost you 633 Eth.
- You have lost your RPL rewards.
- If we don’t vote to enfranchise <10% nodes, you have lost your voice in governance.
I do not believe a rational actor would buy another 633 Eth worth of RPL to top up. I feel like they are more likely to dump everything and walk away, which will hurt RPL’s bottom line.
Of course, this is still an issue with RPL rewards, even if <10% are enfranchised- but I believe sublinear bonding curves will come with megapools to eventually address that. You can easily observe here that this node operator is not a risk to the protocol, as they still have a bond of 5657 Eth, more than they could reasonably steal.
Note that your voting power did not increase as your collateral went down, it simply stayed the same: we are not giving you outsized representation in governance. In fact, you are suffering significantly from the square-root algorithm.
If you wanted to sybil, you would have made 907 nodes with 1 EB16 each and had an aggregate voting power of 907*sqrt(1.6/0.022)/2 voting power, or 3867 voting power. You are, in fact, worse off than someone who had sybiled to protocol, and can coalesce their nodes easily to get back above 10% by exiting half of them.
The only part of this that is hypothetical is the intent of the node operator. This is exactly what happened to 0xfd0166b400EAD071590F949c6760d1cCc1AfC967 - this is a link.
After joining in May, they spent October exiting 249 minipools, and I estimate the reason they did that is to continue to earn rewards on their 66,000 RPL investment. We have successfully incentivized this user to act against the growth of the protocol already- why do we want to further incentivize them by stripping their vote?
Further, it is inaccurate to say that enfranchising <10% gives more of a voice to small operators. Big and small nodes are equally impacted by a down market. The only thing giving small operators disproportionate representation is the square-root voting power calculation.