I wanted to make a record of a conversation we had at DevConnect 2023 about the potential for an additional “priority queue” for EL-induced exits (thanks to @SnapCrackle2383 for bringing together all the tech leads from various staking protocols).
This all started because @OisinKyne had a great idea to give 7002-based exits priority over the current exit queue. This is useful for LST protocols which would benefit from better liquidity guarantees and will need to use this mechanism for safety anyway. Processing only up to some portion (half?) of the maximum exits per block from this “priority queue” would prevent anyone from using this to grief users in the “free queue”.
My tweak of this suggestion is a fee market for determining placement in the priority queue. That is, if I attach more gas to my EL exit, I can get priority ordering over someone who paid less. Practically speaking, this could help fight stETH dominance in LSTfi protocols such as Liquity v2 and Gravita. Currently, they have to give preferential treatment (higher LTVs, lower fees, etc) to LSTs with higher liquidity, but with this idea, they could support low-liquidity LSTs in the same way as high-liquidity LSTs, just with the potential for higher fees on redemption during obscure network conditions. Speaking of those conditions, simply skipping the returning of excess gas would effectively burn ETH when market instability leads to bidding wars on this priority queue.
I will be the first to admit that this is all a bit complicated, and the ideas above would certainly benefit from more modeling and consideration, especially for what could happen during correlated slashing or inactivity leaking. I do think any actual changes to 7002 would be relatively small, however, and the ecosystem benefits would be large. Staking concentration is on everyone’s mind at the moment, and I’d love to find a way to empower smaller LSTs with 7002-style exits.