Proposal: CSM v2 staking rewards structure
Preface
CSM v2 is expected to go live on the mainnet in 2025. Its primary goal is to continue supporting and growing Ethereum Home Staking. The introduction of the Node Operator types feature will allow CSM v2 to offer differentiated protocol interactions between Identified Community Stakers and other permissionless participants.
This post aims to outline a new staking rewards structure in CSM v2 that will allow Lido protocol to continue supporting Home Stakers while maintaining CSM’s competitive market position.
Capital Multiplier
The term “Capital multiplier” will be used below to compare the proposed CSM rewards structure with the market. A CM value of 1 basically means “receive the same amount of rewards per ETH as vanilla staking”.
Capital Multiplier (CM) - A multiplier denoting the amount of ETH (
x * CM) that would need to actively be staked via vanilla staking in order for the expected gross rewards from such staking to be equivalent to the expected gross rewards from participating in the compared-to staking solution with an amount of ETH (x).
More on capital multiplier here.
Beneficial Staking Rewards for Community Stakers
One of the ultimate goals of CSM is to enfranchise independent staker participation in the Lido protocol and Ethereum network. The current version of CSM supports a simple flat rewards structure, with higher than protocol-average staking rewards for both Community Stakers and Permissionless Node Operators, no matter their size or type. This approach creates an imbalance in the incentives, allowing large operators to benefit from the increased staking rewards while diluting small Community Stakers’ and stETH holders’ reward share. In CSM v2, the introduction of Node Operator types and the functionality to tailor protocol interactions based on a Node Operator’s type makes it possible to address the stated goal in a more focused manner. It’s proposed to accomplish this through the use of a “baseline” rewards share that will apply to all permissionless and unknown operators (for each and every validator operated), which can then be tailored for each Node Operator type supported by the relevant module.
For Identified Community Stakers in CSM v2, it is proposed to maintain the current reward share (6% of staking rewards) for the first 16 validators (21 ETH worth of bond) while keeping bond requirements unchanged so that:
- 16 validators (21 ETH worth of bond) will allow the majority of Identified Community Stakers* to benefit from increased fees while not creating an explicit incentive to exit solo validators (min 32 ETH);
- The number of the validators (or ETH-equivalent) eligible for increased staking rewards is limited, meaning that even if large operators are identified as Community Stakers, the relative impact of these increased staking rewards is more pronounced for smaller stakers and incentive to abuse this mechanism by Professional operators possibly is limited;
The proposed approach will allow Identified Community Stakers to reach a capital multiplier of 2.36 for their first 16 validators (~2.5x the current average validators per Node Operator in CSM v1), with a decreasing capital multiplier for additional validators operated.
All validators controlled by Permissionless Node Operators will receive the baseline staking rewards described below. The same applies to the validators after the 16th for the Identified Community Stakers.
* The Community Staker identification framework is currently being researched and will be shared with the community for feedback soon.
Baseline rewards share
Currently, only Rocket Pool and Stader offer permissionless home staking solutions, while others are either permissioned (Ether.fi) or currently not accepting node registrations (Puffer). DVT providers like Obol and SSV allow permissionless home staking but provide no capital multiplier.
| Procotol | Capital multiplier |
|---|---|
| Rocket Pool (Saturn-1) | 1.35* |
| Stader | 1.46 |
* - with pure ETH staking without RPL
Contributors working on CSM v2 believe that setting the default Node Operator reward share to 3.5% while keeping bond requirements unchanged would fulfill the goals set out in the CSM Evolution post, allowing CSM to scale while providing competitive rewards with other modules and the rest of the market. This would result in a default CSM v2 capital multiplier of 1.76, which is still market-leading but not cannibalistic of other modules (where node operator share may also be reconsidered in the future).
| Parameter | Value |
|---|---|
| First validator bond | 2.4 ETH |
| Subsequent validators bond | 1.3 ETH |
| Node Operator reward share | 3.5% |
| Capital multiplier | 1.76 |
Supportive materials
An important note from the graph is that the capital multiplier for the Identified Community Stakers asymptotically tends to the capital multiplier for the Permissionless Node Operators while being significantly above it even for large amounts of bond. This creates a small incentive for Identified Community Stakers to run more than 16 validators should they have enough capital for that.