Allow for time-delayed rETH burning at protocol rate using validator exits
Suggestion:
Currently rETH can only be redeemed at the protocol rate when sufficient liquidity on the EL exists. If it doesn’t, rETH holders that need to exit are forced to sell at a discount on secondary markets. There is no direct mechanism for rETH holders to exit validators.
While node operators can take advantage of a discount of rETH on secondary markets by exiting validators, this only becomes attractive when the discount becomes large enough and therefore only serves as a worst case insurance from the perspective of rETH holders.
I’m suggesting to add a mechanism that lets rETH holders “request unstaking”. This could then lock the rETH for a period of time. In regular intervals, validators would be exited (would require EIP 7002 and Saturn 2) to fullfill these unstaking requests. At that point the rETH is burned and ETH can be claimed.
Advantages:
- The value proposition of rETH is improved by removing any risk of not being able to exit the position or having the risk of a loss on exit
- This may attract new holders that need a stronger liquidity guarantee but might not end up using this exit mechanism regularly
Disadvantages:
- The value proposition of being a node operator is hurt, since there now would be a risk of validators being exited when the operator would prefer to keep them running
Open Questions:
- How does the unstaking mechanism work in detail and how do we ensure it can’t be exploited?
- How are exited validators chosen? FIFO? Random?
Note: I understand this submission is ineligible for compensation in the event I am chosen as a review volunteer.