EIP-7251: Effects on Rewards & Risks

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Hi there!

The purpose of this thread is to collect discussion and community alignment with regards to support EIP-7251: Increase the MAX_EFFECTIVE_BALANCE in Lido protocol.

Initially, @Mol_Eliza and me conducted a study to evaluate the potential impact of this EIP on changes in APR and to assess how consolidation might influence the likelihood of penalties.

Analysis and Key Findings

  1. Impact on APR:
  • In the event of EIP implementation, we may observe a slight increase in APR from 0.000094% to 0.001958%, depending on various network parameters and validator’s size. This translates to approximately 9.4ETH to 195.8ETH per 10 million in quantitative terms.
  • Under normal network conditions, validators of type 0x02 with a volume less than 1700ETH will marginally decrease the APR.
  • If the network experiences huge stake inflow and validator activation queue or TX mempool overloading, then 0x02 validators will be more effective.
  1. Slashing Risks:
  • Consolidating to >100 Validators under same host is not impactful in terms of expected losses, therefore could be utilized by large staking actors. However consolidation leads to increase in variance for whole interval under consideration (1500 → 1), therefore increasing uncertainty, even with almost the same expected values
  • Consolidating to low amount of validators leads to significant increase in expected losses due to increase in expected initial losses
  • In harsh network conditions or long reaction time negative effect of consolidating decreases (and could became insignificant)

The approach details, analyses, and conclusions are detailed here: EIP-7251: Risks & Rewards and were presented during Node Operator Community Call #18.

Based on the conducted research, there is no clear evidence to suggest that immediate support for EIP and the transition to type 0x02 validators is necessary. The risks of incurring penalties increase with the consolidation of validators.

Thank you, feedback & suggestions are highly appreciated!

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Thank you @Aleksandr_V and @Mol_Eliza for this detailed and helpful research. This analysis will help node operators consider the options on how to allocate ETH into each validator key once EIP-7251 is deployed.

We just wanted to ask you about how you think about the cost reduction of running the validator infrastructure when having fewer numbers of validator keys.

It could have been that the cost reduction isn’t significant and thus can be dismissed, but we’d love to know your thoughts behind it.

Thanks in advance!

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It’s highly dependent on infa-setup whether there’s a cost reduction, and in many setups it’s actually possible that there will actually be a cost increase. Why? Because if you are isolating your setups, as you consolidate validators (stake) into 1 validator client, you need to increase the amount of pods / “instances” you are running (i.e. VC + EL+CL combos), because essentially for blast-radius minimization and containment purposes, you will likely not want to be running more than 1 to 8 2048 ETH (as an example, 8x2048 ~= 500x32) validators per VC.

Ultimately, it depends on how an NO is running their infrastructure. One possibility is that an NO could utilize the same EL+CL pair for more VCs than before, but if for example your infra paradigm is to keep all pods isolated then this doesn’t work.

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