Improve stake consolidation and fairness by imposing a “sweep” withdrawal fee for 0x01 validators set to 0.05% of the withdrawn amount.
Abstract
A fee is proposed on the partial beacon chain “sweep” withdrawal of validators using 0x01 credentials to improve stake consolidation and fairness. Ethereum’s fast finality roadmap hinges on staking service providers migrating from 0x01 validators to 0x02 compounding validators. One roadblock is that 0x01 validators receive free-of-charge sweep withdrawals for balances exceeding 32 ETH, which consume protocol resources that are not accounted for. To address this, a 0.05% fee is imposed on the partial 0x01 sweep using a minimal modification to process_withdrawals(), applying the new constant WITHDRAWAL_FEE_FRACTION = 2000.
I’d like to counter the proposal and spin the take around.
Instead of adding additional complexity for 2$/validator/year, why not actually remove complexity from the spec and archive the same goal. Get rid of the automatic withdrawals clock, onboard 0x01 to manual withdrawals like 0x02?
With withdrawals clock you are referring to the sweep? Removing the sweep would be a huge change and it is currently used also for exits. Also, it seems like it would degrade the UX. Furthermore it might not solve the underlying problem we are actually trying to solve, which is to provide the right incentives for stakers to consolidate stake in 0x02 validators. Finally note the alternative specification that outlines higher withdrawal fees and the rationale behind them.
EIP 8062 is deeply flawed in that it fails to address or even analyze the root cause of the lack-of-consolidations problem that is due to the flawed design of the 0x02 validator.
0x02 is flawed for two related reasons:
It fails to recognize that many validator operators (both pro and solo) need predictible income in order to pay taxes, business and living expenses, etc. While 0x01 validators provide this with their automated sweep feature, 0x02’s need for an Ethereum transaction followed by a highly unpredictable time in a withdrawal queue (a horrible UX in itself) eliminates the predictible income nature of the 0x01 validator.
The 2048 ETH threshold for automated sweeping is way too high. That level is so high that each validator key would now be worth ~$10 million and the validators so large that they should probably be called whale-idators. If the 0x02 automated sweep level had been set to 320 (or maybe 512) ETH we would have seen a far greater level of consolidation.
Lastly, adding the fee that is proposed in 8062 merely penalizes the solo staker and those that need predictible cashflow. Very few solos have enough ETH to consolidate to a whale-idator in order to benefit from the automated sweep. And those that do consolidate are now trapped by the unpredictable timing of cashflow that 0x02 demands.
The best solution to encourage consolidations is not a flawed and reactionary EIP 8062. It is a tweak to the 0x02 validator to either a) drop the sweep threshold to 320 ETH, or b) make the sweep threshold configurable via an onchain transaction.
Let’s fix 0x02 before meddling via 8062. And maybe that is as simple as a copy/paste of 0x02 into 0x03 with a 320 ETH sweep threshold.