Oh boy, here comes the big one.
As strongly as I am for exiting underperforming validators aggressively, as strongly I am totally against exiting well-behaving validators.
Here’s why:
I am doing my job!
Having validators is work:
- Buy/setup/maintain hardware
- Setup/maintain operating system
- Setup/maintain Smart Node and EL/CL clients
- Be informed about changes to Smart Node and Hard Forks on Ethereum
Having validators thus costs:
- Expertise to operate the hardware/software stack
- Time to read up about important changes
- Money to pay the increased electical bill
- Money to lock up your part of the stake
My first validator was activated in December 2021 and beaconcha.in tells me it has:
- Blocks (Proposed: 14, Missed: 0, Orphaned: 0, Scheduled: 0) → 100%
- Attestation Assignments (Executed: 365’723, Missed: (545)) → 99.85%
- Sync Participations (Participated: 0, Missed: 0, Orphaned: 0, Scheduled: 0)
Over 4.5 years, I have only missed 550 attestations as a hobby-validator.
And now you wanna come and reward me by kicking me out? Just because of some rETH premium? That is not ok!
There was/is a clear contract!
When spinning up my validator, I knew that I would lock away my Ether. I will not be able to daytrade and will not know how long it will take until I can get it back. In fact, that was even before the Merge, so getting back your stake wasn’t even technically possible at the time. As a current example, I would really like to migrate my minipools to megapools now, but the entry queue if 60 days right now. The same could happen with the exit queue in the future, in fact, end of 2025 had the exit queue at 40 days.
And the people who gave/give the other portion of the stake by buying rETH also know how the system works. They know they can trade with it but maybe at a premium. So, they are not as locked in as me with my validator, but there is still some friction. And of course there is, because the nature of staking is that Ether is locked away! They participate in the system and the system locks currency for the duration of the validator-operations.
So, there is a clear understanding how the system works:
- Validator
- gets more rewards
- has to do more
- is not liquid
- can decide when to stop
- Staker
- gets less rewards
- is liquid
- can decide when to sell but pays more or less premium depending on the validators
And now you wanna come and break that contract? Just because of some rETH premium? That is not ok!
Supply and demand is normal economics!
- I am purchasing 250 shares from NVIDIA for 10$ each. It’s great, nobody wants them, I can get them relatively cheap!
- A year later I purchase another 250 but have to pay 1’000$ per share now because it’s in high demand lately.
- A year later I sell 250 shares at a price of 2000$ each, because everybody still wants them.
- Another year later I sell my remaining 250 shares at a price of 1$ each, because nobody wants them anymore, they’re trash.
What you just read is simple economics. There’s an equilibrium where demand meets supply and that defines the price point for it.
If there is little rETH demand and you want to sell, well, you must sell at a low price. If rETH demand is high, you can sell for a very nice price. And low supply drives the price up while abundant supply drives it down.
At the moment, we have low ETH supply for rETH withdrawal because validators don’t exit. But instead of just accepting economics, this proposal reads to me like the moaning of some finance bro.
- Finance bros always tell you you’re stupid not investing when they make bank. “What, you’re not investing in MemeCoin1337? Haha, I’m making millions with it!”
- Finance bros then cry when their investments crash and demand help from other people. “Elon Musk tweeted shit about MemeCoin1337 and the price crashed. Now the government needs to give me 2 Millions because I’m so fucked now.”
No, you wanted rETH, so you purchased rETH for the price that was at that time appropriate. Now you don’t want it anymore, so you can sell it for whatever price is appropriate now. You don’t get to tell me that I have to exit my validator for you. You also can’t force anybody to sell NVIDIA stock if they don’t want! You get the price you get, you can take it or leave it.
And now you wanna come and rig the market? Just because of some rETH premium? That is not ok!
Ethereum also doesn’t do this
Ethereum also doesn’t want a bazillion validators. Ethereum also doesn’t want only 1 validator. Ethereum wants a nice amount of validators to ensure security and resiliency.
Ethereum doesn’t just exit my validator though. If they would, that would no longer be decentralised staking because only the big operators with automatice re-entry scripts and money to do so would still participate. Instead, Ethereum just pays less rewards and then I can decide for my own if that’s still ok with me.
And now you wanna come and go against the ethos of Ethereum? Just because of some rETH premium? That is not ok!
Summary and proposal
In a normal market you have:
| Supply | Demand | Price |
|---|---|---|
| 1 asset | 1 asset | Normal |
| 1 asset | 1000 asset | High |
| 1000 asset | 1 asset | Low |
| 1000 asset | 1000 asset | Normal |
If the price is high, you can’t force somebody to sell their assets just because you want to buy them cheaper, that is improper.
In Rocket Pool:
- exiting a validator or buying rETH supplies ETH
- spinning up a validator or selling rETH demands ETH
We could force people to buy rETH, that would supply ETH for the one who wants to sell rETH! But no, we don’t do that, because it’s improper.
And so is forcing a well-perfoming validator to exit just because somebody wants to sell rETH.
Instead, tie the validator rewards to the demand for validators, for ETH and for rETH. We had this initially, that the validator share was determined based on if we needed more validators or not. The problem was, that it was fixed when the validator was created. So if you had 20% commission, you had it even in times when validators where aplenty.
But now we have:
- megapools
- “forced” automatic newest delegate
- parameters to dynamically adjust rewards splitting
So, I say: Let the market play and have validators’ rewards dynamically tied to current demand/supply. But don’t force me to appease the rETH overlords just because they now want to sell.