If the Ethereum validator deposit queue remains full, it is estimated 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 added in the Dencun upgrade?
Text & Compilation: Karen, Foresight News
In the previous Ethereum execution layer meeting, Ethereum core developers identified 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 solutions.
According to data from beaconcha.in, the current Ethereum staking volume has reached 25.84 million ETH, an increase of over 90% from about 13.5 million ETH a year ago before the merge (September 15, 2022). At the same time, the number of active validators has increased from 490,000 to over 800,000.
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Source: beaconcha.in
It is also worth noting that there are currently over 28,000 validators in the queue, and another 621 validators waiting to exit.
What is EIP-7514? Why was it proposed?
As Ethereum Foundation researcher Dankrad Feist said, the number of Ethereum validators is surging. In addition, Lido currently dominates the field of liquid staking, holding nearly one-third of all staked ETH and showing no willingness to self-restrict, which may pose a risk to the decentralization of Ethereum. In addition, governance attacks on Lido could also cause serious problems for the Ethereum network.
Source: Dune
Therefore, Dankrad Feist believes that the Ethereum community needs some time to figure out the future of Ethereum staking. As a temporary solution, it may be beneficial to reduce validator churn (limiting the number of validators that can enter as active validators per epoch).
The EIP-7514 proposed by Ethereum developers dapplion.eth and Tim Beiko aims to slow down the growth rate 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 full, it is estimated that by May 2024, 50% of all ETH will be staked. By September 2024, this ratio will rise to 75%, and by December 2024, it may reach 100%. In addition, as the size of the validator set increases, rewards will decrease. Combined with the promotion of liquid staking tokens, the consensus layer will face greater pressure. 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.
The comprehensive assessment by developers suggests that the Max Epoch Churn Limit should be restricted to 8. Assuming that the next fork occurs in the early third quarter of 2024, it can significantly reduce the expected scale without causing a significant decrease in Churn on the expected Dencun fork date. Even if the Dencun fork is delayed, a limit of 8 can prevent the ETH staking level from reaching 50% for at least one whole year.
EIP-7514 is designed to allow the community more time to discuss the development of Ethereum staking and the handling of liquidity staking. By limiting the Epoch Churn limit now, the time to reach the critical point of the total supply of staked ETH is greatly delayed.
What is the Ethereum validator lifecycle and Churn limit?
When talking about validators and Churn limits, it is necessary to talk about the Ethereum validator lifecycle. In the Ethereum 2.0 Phase 0 validator lifecycle, the activation or removal of validators from the queue is dynamically restricted. The process for validators to join is as follows:
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Validators first deposit 32 ETH into the deposit contract. The first step is to check whether they are eligible to enter the activation queue. If eligible, they will enter the activation queue in the next Epoch;
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The second step checks whether the validator is eligible for activation and within the Churn limit. If the conditions are met, activation will occur after 4 Epochs;
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After activation, the validator becomes an active validator and is assigned responsibilities such as executing proofs and proposing in each Epoch. They also receive rewards.
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After activation, active validators can voluntarily exit after experiencing 2^11 Epochs (about 9 hours). In any voluntary or forced exit, there will be a delay of four Epochs before the staker can make a withdrawal. If the validator is penalized, it will take 2^13 Epochs (about 36 days) before a withdrawal can be made. If the validator exits voluntarily, it will take 2^11 Epochs (about 9 hours) before a withdrawal can be made.
In order to ensure the stability of the Ethereum consensus mechanism to a greater extent, the number of validators that can become active validators is limited per Epoch (one Epoch is 6.4 minutes). This is known as the Churn limit, and it varies based on the number of active validators. When the number of active validators reaches a certain threshold, the Churn limit per Epoch will increase.
Source: Validator Queue
Currently, the Churn limit per Epoch for over 800,000 validators is 12, and the daily Churn limit is 2,700. This means that if no new validators are added, the more than 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 exceeded 96,000, and the waiting time to join the queue at that time was as long as 45 days.
How should we view EIP-7514?
EIP-7514 is essentially aimed at slowing down the increase in the ETH staking rate, in order to gain more time to research solutions before reaching the critical staking rate. In my opinion, taking preventive measures is more important. However, there are also community users who oppose EIP-7514, believing that it will further increase validator centralization.
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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