Hi all, I’d like to weigh in here and expand a bit more on my point. I haven’t had the bandwidth to formalise this into something actionable, but if I don’t say something soon, I won’t have the opportunity to, so here’s something quick.
The crux of the matter in my eyes is that a simple FIFO exit queue will some day lead to bank-run like behaviour of the validator set around contentious forks, if everybody is piling out, it’s rational to panic first and exit early rather than to leave it too late. We can and should do better here, and the adjustment is, in my eyes relatively minor.
I think this can be fixed with a control-loop mechanism, this EIP already has an escalating basefee like EIP1559, to prevent too many exits, my belief is that these exits should simply be processed first, ahead of the ‘free queue’. This means you can always have your money back immediately(-ish), if you are willing to pay the base fee, this gives you reason to relax and not exit ‘just in case’.
The upsides of this design would be significant in the context of LSTs. Currently we suffer from a situation where only the largest are materially liquid, and whales won’t allocate to an LSP that they would make up too large of a percentage of. LSPs also have to subsidise an LP pool to convince users these assets are liquid. If they could be redeemed near instantly, the risk of being stuck would be greatly reduced. These protocols could also keep their peg more predictably. Similarly, lending protocols are less likely to see liquidations due to ‘queue mismanagement’, where an LST is under target for longer than the liquidation window, because they didn’t foresee a ‘profitable trading strategy’ where someone drains the LP for their token, forcing withdrawals, but achieving cascading liquidations faster than the withdrawals can clear the exit queue.
On the implementation side of things, I have had a chance to speak with @djrtwo, @mikeneuder and others, and I acknowledge there is complexity around how to handle huge demand for a priority queue (e.g. if it’s > the amount of processable exits, what do, third queue? fail the tx?) among other things like the statefulness of this feature, but I do think its worth allocating some time towards this. If we don’t; we get a feature that costs lots of gas for users, and provides minimal benefits that is only for worst case scenarios. If we do; we fundamentally change the need for LSPs in the market, we make direct staking more palatable to users that are telling and showing us that liquidity is a must, we make competition amongst the long tail of LSPs easier, and we make the game theory of panics more stable, hopefully.
I know everyone (myself included) really really wants this feature soon, but I strongly believe that if we go with a simple FIFO queue, with an added tax for withdrawal key initiated exits, we will be in a worse place than if we do something more forward looking and pre-emptive.
Feedback welcome. 