Ok, but that’s not what is suggested here and not what I’m responding to above. There’s a pretty big difference between 4 + 0.4 and 4 + 2.8 and the optimal value is probably somewhere in between.
If you want to focus on "protecting from reductions in collateral requirement ", I could understand you trying to defend 4 + 1.6.
Collateral requirements and the breakdown between ETH and RPL is very much part of the discussion. I’m not necessarily directly addressing you; rather making a point about what type of collateral requirements are feasible.
Re: pushing for >1.6 ETH of RPL:
I think this is a good way to frame it. LEBs are a product improvement and you think we would maximize value by increasing the price. I think we are better off keeping price as low as possible and turning the better and cheaper product into a larger market share.
Note that even staying with 1.6 ETH of RPL, the costs for an NO going LEB is still higher than the normal stake right now; It becomes 20% of the NOs stake vs. 10% for an 8 ETH LEB.
Personally, I’m a fan of keeping 1.6 ETH as it gives room to bring down the rETH commission rate to 10% while still allowing RPL to unlock extra commission for NOs (For 8+1.6, the 1.6 ETH of RPL unlocks 2.4 ETH of staking rewards, same as now).
RPL collateral should be used as a last-resort IMO and an extra 50% of it (for 8+1.6) does not change the math on LEB security much. (Even Ken’s original analysis used a static 1.6 ETH of RPL for LEBs).
I’m guessing I may have missed this, but is there a strong argument against just keeping the minimum collateral to 1.6 ETH worth of RPL? I believe knoshua even alluded to this being a solution in one of his responses above.
I see it as keeping what RPL offers as more constant.
Right now I view it as: the ETH you put in gets its own rewards, and the RPL you put in unlocks commission. So at minimum RPL, 1.6 ETH of RPL unlocks the equivalent reward to 16*.15=2.4 ETH. In other words, each ETH worth of RPL unlocks the yield from 1.5 ETH.
If we kept it at 1.6 ETH minimum, but allowed 6 NO ETH, then we’d have 1.6 ETH of RPL unlock the equivalent reward of 26*.15=3.9 ETH. This is a huge step up – each ETH worth of RPL unlocks the yield from 2.44 ETH.
If we keep it at 10% of protocol ETH (the main recommendation of this proposal), then for 6 NO ETH we’d have 2.6 ETH of RPL unlock 26*.15=3.9 ETH. This keeps steady the part where each ETH worth of RPL unlocks the yield from 1.5 ETH.
I quite liked Knoshua’s take on this being a tradeoff between increasing the attractiveness of our product to attract more NOs vs going for fewer NOs that invest more. I should note that even with the 10% of protocol ETH proposal, 6+2.6 is significantly more attractive ETH-yield-wise (111.6% ROI of solo staking) than the current 16+1.6 (104.6%), even if not as attractive as 6+1.6 (120.9%).
As a quick reference point, if everyone did minimum investment 8-NO-ETH minipools, and we wanted to stake all existing RPL:
I think case 3 is easier to achieve than case 2.
That’s assuming 15% commission. If we go to 10% or lower the advantage goes away completely.
Between deposit pool, rETH collateral and the MEV limitations, I think we ought to design in a way that allows for more flexibility with commission to give rETH a chance to remain competitive with other LSDs.
Hmmm… I think there’s a structural question and a parameter settings question.
The structure initially proposed is having an NO put up x NO_ETH and y ETH of RPL where x = 32-Protocol_ETH, y = Protocol_ETH*z, and z is a parameter we can set. This proposal went with z = 0.1 for the current 15% commission. If we change commission, it seems logical that z can change too.
The structure you’re floating is having an NO put up a NO_ETH and b ETH of RPL where a = 32-Protocol_ETH and b is a parameter we can set. You’ve suggested b = 1.6.
For example, if we decide to require 8 NO_ETH, then the minimum size pool would be exactly the same for z = 0.066… and b = 1.6. The structural difference is that there would be no reason to put in more ETH in the latter case, whereas with the former case Node Operators can make choices about what RPL exposure they are most comfortable with and trade that against how much ETH they’re earning commission on. As a particular hypothetical case with a 9% commission, if someone wanted to make a pool with the current 16 NO_ETH, b=1.6 they’d be losing yield compared to solo staking (but taking on the RPL exposure), whereas z = .066… would still have a benefit over solo staking.
Any thoughts on any of this @langers ?
Can you share more? I think you’re alluding to rETH not being competitive due to MEV reasons but I haven’t heard of such a concern before.
A couple of points:
Curious to hear what Langers and co. will share as options.
Strong agree on #1. We will lose a race to the bottom because we need to offer Return on Investment to our validators and folks like Coinbase and Lido have validators that don’t need to put in any investment (therefore making ROI great with any commission).
We can sell that rETH as the safest money lego for long-term health of the chain due to our decentralization. If the chain ain’t healthy then, <insert-protocol> won’t be healthy either.
Big MEV block stealing and abusing the free strike system.
I think it’s important to package commission improvements with LEBs, because of the opt-in nature of minipool delegate upgrades. LEBs necessitate a delegate upgrade and give us options we otherwise wouldn’t have.
Agreed that there is no point in a race to the bottom, but that’s not what I’m arguing for at all. Between the things I listed above, we might very well be looking at an effective tax of 25%+ on rETH. I am not comfortable with charging that much of a decentralization premium, especially with other decentralized solutions on the horizon.
This is what I keep coming back to: we suddenly have new options to decrease rETH commission, but we are forgoing these in order to keep RPL collateral at 70% of ETH stake. So we’ll get thousands of new minipools spun up by people who already own RPL, but no increase in demand for rETH.
What some might call a race to the bottom, I call legitimate competition- we currently have first mover advantage, but we can’t assume we’ll have a monopoly on decentralized staking forever, and it’s going to be hard to bring down rETH commission with 20,000 minipools guaranteed a lifetime 15% commission.
I think the main thing here is not that RPL comes first, but that it is used at all. Which is not happening with the coming mev penalty implementation.
As for using it first, there are clear drawbacks (cost of liquidation, price impact) and also benefits: