Exited all my validators, and I think it's worth discussing: Ethereum has an incentive problem.
1/🧵
1/🧵
2/ Proof of stake is a simple concept on the surface: those with money at stake are rewarded in exchange for honest validation of new blocks.
If you're dishonest, your stake is vulnerable to slashing (aka, there is a high cost to dishonesty).
If you're dishonest, your stake is vulnerable to slashing (aka, there is a high cost to dishonesty).
3/ Similar to difficulty adjustments with bitcoin, incentive to validate should naturally reach equilibrium as stakers reach consensus on what APY justifies the opportunity cost of locking up ETH.
4/ But with the advent of liquid staking derivatives like Lido, and restaking protocols on top of that, the "equilibrium" is shattered as the tradeoff between staking and having liquid eth is muted: you can have your cake and eat it too.
5/ And this is great for end users!
Liquid staked ETH opens up a host of use cases, and, since it *can* exist, it absolutely should. This is not an argument against LSDs.
Liquid staked ETH opens up a host of use cases, and, since it *can* exist, it absolutely should. This is not an argument against LSDs.
6/ But incentives need to be reconsidered. The dynamic is shifted: the stake operator (Lido et al) is a different entity than the stakeholder (end users who deposit ETH), and the stakeholder still has a liquid asset (stEth or similar).
7/ In turn, staking returns trend towards zero and solo stakers (such as myself) are driven out of the system, because the r/r is no longer there.
8/ It's hard to say what the solution should be. The simplest from an economic theory perspective seems to be to enshrined an LST that gets awarded to solo stakers upon depositing to the becon chain, and must be used for redemption.
9/ this gets hairy as stake positions are, by nature, nonfungible. You need to maintain the ability to reward and punish individual stakes, and the LST needs to support that.
That is a difficult if not impossible task, but one worth researching.
That is a difficult if not impossible task, but one worth researching.
10/ this is not meant to fud ETH. Rather, I speak from the perspective of a long time solo staker that *enjoys* staking, and would hate to see the slow death of solo staking.
11/ Curious to hear other perspectives as well.
Are you solo staking?
If so, at what rate would you cut and run?
If not (assuming you had the capital), at what rate would you start?
Are you solo staking?
If so, at what rate would you cut and run?
If not (assuming you had the capital), at what rate would you start?
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