If the Ethereum validator deposit queue remains constantly full, it is expected that by May 2024, 50% of all ETH will be staked, and by December 2024, it may reach 100%. Against the backdrop of the surge in Ethereum validators and staking volume, what is the EIP-7514 proposal introduced in the Dencun upgrade?
Author & Translator: Karen, Foresight News
In the last Ethereum execution layer meeting, Ethereum core developers designated EIP-7514 as part of the Dencun upgrade, aiming to slow down the growth rate of validators and reserve more time to study the future of Ethereum staking and potential solutions.
According to data from beaconcha.in, the current Ethereum staking volume has reached 25.84 million ETH, an increase of over 90% compared to approximately 13.5 million ETH a year ago (as of September 15, 2022). At the same time, the number of active validators has increased from 490,000 to over 800,000.
Source: beaconcha.in
Equally noteworthy is that there are currently over 28,000 validators in the queue, with an additional 621 validators waiting to exit.
What is EIP-7514? Why was it proposed?
As Ethereum Foundation researcher Dankrad Feist pointed out, the Ethereum validator set is experiencing a significant increase. Furthermore, as of now, Lido dominates the field of liquid staking, holding nearly one-third of all staked ETH and showing no willingness to self-restrict, which could pose a risk to Ethereum's decentralization. Additionally, governance attacks on Lido could also pose serious problems for the Ethereum network.
Source: Dune
In response, Dankrad Feist believes that the Ethereum community needs some time to figure out the future of Ethereum staking. As a temporary solution, limiting the validator churn (the number of validators that can become active validators in each Epoch) may be beneficial.
The EIP-7514 proposed by Ethereum developers dapplion.eth and Tim Beiko aims to slow down the growth of validators by limiting the Max Epoch Churn Limit, changing the maximum validator growth rate from exponential growth to linear growth.
If the Ethereum deposit queue remains constantly full, it is expected that by May 2024, 50% of all ETH will be staked, and by September 2024, this proportion will rise to 75%. By December 2024, it may reach 100%. Additionally, as the validator set grows, rewards will decrease, coupled with the push for liquid staking tokens, increasing pressure on the consensus layer. The increase in the number of validators will lead to an increase in gossip messages and Beacon state size. It is currently unclear how much marginal security benefit comes from additional economic weight.
After comprehensive consideration, the recommendation is to limit the Max Epoch Churn Limit to 8. Assuming the next fork occurs as early as the beginning of the third quarter of 2024, this can significantly reduce the expected scale without causing a significant drop in Churn on the expected Dencun fork date. Even if the Dencun fork is delayed, limiting it to 8 can prevent the staking level from reaching 50% of ETH for at least 1 whole year.
EIP-7514 is intended to give the community more time to discuss the development of Ethereum staking and the handling of liquid staking. By limiting the Epoch Churn now, the critical point of the total staked ETH supply is significantly delayed.
What is the Ethereum validator lifecycle and Churn limit?
When discussing validators and Churn limit, it is necessary to mention the Ethereum validator lifecycle. In the 0th phase of Ethereum 2.0 validator lifecycle, the activation or exit queue of validators will be dynamically limited. The specific process for validators to join is as follows:
Validators first deposit 32 ETH into the deposit contract. The first step checks if they are eligible to enter the activation queue. If eligible, they enter the activation queue in the next Epoch.
The second step checks if the validator is eligible for activation and within the Churn limit. If eligible, they will be activated 4 Epochs later.
After activation, validators become active validators and are assigned responsibilities such as executing proofs and proposing in each Epoch, and they receive rewards.
Once activated, active validators can voluntarily exit after experiencing 2 to the power of 11 Epochs (approximately 9 hours). In any voluntary or forced exit, there is a delay of four Epochs before the staker can withdraw. If the validator is penalized, they must wait for 2 to the power of 13 Epochs (approximately 36 days) before being able to withdraw. If the validator voluntarily exits, they must wait for 2 to the power of 11 Epochs (approximately 9 hours) before being able to withdraw.
To further ensure the stability of the Ethereum consensus mechanism, the number of validators that can become active validators in each Epoch, known as the Churn limit, is limited. This limit changes based on the number of active validators. When the number of active validators reaches a certain critical point, the Churn limit per Epoch will increase.
Source: Validator Queue
The current Churn limit for over 800,000 validators is 12 per Epoch, with a daily Churn limit of 2700. This means that if no new validators join, the over 28,000 validators currently in the queue will need more than 10 days to become active validators. In June of this year, the number of validators in the queue reached over 96,000, requiring a waiting period of up to 45 days to join.
How should EIP-7514 be viewed?
Essentially, EIP-7514 aims to slow down the increase in the staking rate of ETH, allowing more time to study potential solutions before reaching the staking rate critical point. In the author's view, taking preventive measures is more important. However, some community users oppose EIP-7514, believing that it will further increase the centralization of validators.
References:
https://eips.ethereum.org/EIPS/eip-7514
https://notes.ethereum.org/@dankrad/churn-limit
https://notes.ethereum.org/@hww/lifecycle#4-Validator-lifecycle
https://www.validatorqueue.com/
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