The State of Staking in June 2022
Codefi Staking is now moving into the final stages of the Merge preparation. We have been working with the teams at Teku and Lighthouse, two leading Ethereum clients, and one of the key features we’ve worked on is to enable different validator accounts, operating on the same validator client, to hold different fee_recipients.
The fee_recipient is where priority fees will be paid on the execution layer as and when the validator gets selected to propose a block. This flexibility will enable us to provide customers better diversity, in terms of client distribution and geographical regions. In addition, customers will be able to select different fee_recipients on a stake-by-stake basis.
Another important addition to validator staking rewards is maximal extractable value (MEV), which is the maximum economic value apart from the validating reward that can be extracted from validating a block by including, excluding, or changing the order of transactions to be included in a block.
There is a lot to be said about the pros and cons of the mempool marketplace evolution. But for now, it is important to note that we’ve been encouraging the team at Flashbots to enable MEV-Boost to point at different relays set at the validator key level. MEV-Boost is a middleware that allows validators to sell their blockspace to other blockbuilders, including Flashbots. The capability of MEV-Boost to point at different relays for different validators will serve the same purpose as the fee_recipient functionality mentioned earlier and help Codefi Staking engage across the entire MEV ecosystem as it evolves and expands.
The other important element we addressed over the last month is upgrading the base platform to improve our handling of the network size. Over the period of our upgrade, the missed attestation metric has reduced five-fold across the board.
The multi-protocol discovery work mentioned previously is starting to conclude with the staking team starting to land on what that priority list looks like along with a scalable, methodical approach to deployment.
State of Staking
Everyone agrees the benefit of a bear market is that the noise diminishes, allowing the ecosystem to focus on building and delivering. The same appears to be true of the staking patterns on Ethereum. After a number of months with extraordinary growth and long weeks of waiting for activation, validator numbers have mostly stabilized and the queue, as I write, is zero. The staking activation queue is the point a new validator is added to the Beacon Chain and the point they start earning rewards.
One very interesting consequence of the bear was the huge selling pressure on stETH that appeared to “de-peg” it from the underlying ETH. While lots of theories seemed to abound, from “there’s something not right with the token” to “Lido are too big” – the simplest explanation feels the most likely: there were many more sellers than buyers in the market. The reason this had a stronger effect on the stETH:ETH price is because the only way to “realize” the value of stETH at the moment is to sell it – there’s no way to redeem the underlying ETH. This is because withdrawals on the Beacon Chain will be enabled in the fork that will come after the Merge. So, the token suffers the effects of any asset when one side of a market falls away – the “liquidity” token stops being so liquid.
On the Lido “is too big” question, the decentralized autonomous organization (DAO) is undergoing a vote at the moment on whether it should restrict its market share, and it certainly looks like the answer is going to be a resounding ‘no’. This is probably justified by the fact that Lido does not run its own validators and it does try to add diversity when it onboards new node operators. However, these factors will be put at risk should Lido begin to enforce particular configurations or infrastructure parameters across all of those node operators. Especially, if it creates a risk that affects more than 33% of the network.
As for the long awaited Merge – yep, it’s still on its way. The teams have bought a little time by delaying the difficulty bomb we talked about last time but the intention seems very strong for the Merge to happen in autumn. No date has been set and no date has been spoken and, to that, we also will adhere.
There are so many great places to get detailed information on what’s happening with the Ethereum roadmap. A good place to start is Ben’s fortnightly update. Anthony Sassano’s Daily Gwei is also a fun daily update on all things Ethereum: https://thedailygwei.substack.com/