Embracing Decentralization for ETHx

Introduction

With the ETHx Power Pledge, we pledge to keep Ethereum decentralized by building a liquid staking solution that is accessible, reliable and rewarding.

Ethereum needs a decentralized staking ecosystem that ensures a broader and healthier distribution of stake, reducing single points of failure. We envision a future where ETHx and its diverse network of nodes, facilitated by independent home stakers, becomes integral to the ETH staking landscape, contributing to greater security on the network.

In the world of blockchain technology, on-chain operations are the cornerstone. However, they come with their own limitations, such as the unavailability of staking data on the Execution layer, high gas costs, network congestion, intensive computations and lack of archived data on-chain. These limitations mean that some operations cannot feasibly be performed on-chain currently.

To navigate these trade-offs, we have split up computations across three key elements:

• On-chain logic
• Oracles committee
• Stader workflows

We are committed to transitioning an increasing amount of computation on-chain over time, made possible with the onset of new upgrades to the Ethereum network and innovations that the ETHx protocol team is working on.

Current state and future roadmap

Here’s a snapshot of the modules where we’ve incorporated Stader workflows in their current state and our plan to decentralize them in the future.

1. Validator Exit List: When withdrawals exceed deposits, the protocol initiates the exit of validators to provide users with the necessary ETH for redemption. Currently, the order for unstaking is computed by Stader based on a First-In-First-Out (FIFO) approach. However, we aim to decentralize this step by moving computation on-chain and having oracles submit the required data. Furthermore, the validator exit order will be rearchitected based on the following factors:
   
   a. Validator performance history
   b. Operator performance history
   c. SD collateralization factor
   
   More details will be floated for community discussion in the future.
2. Exits & Forced Exits: The ETHx architecture provides high economic security with the 4 ETH bond from permissionless Node Operators. Additionally, Stader mandates an approved exit message (pre-sign) which lets ETHx exit validators based on objective criteria: Missed attestations, MEV misappropriation, etc. This is an industry-first innovation. A pre-sign message is a robust enforcement mechanism for validator behavior. It assures stakers redemption of their staked principal and future rewards while lowering the capital barrier for anyone to become a node operator.
   
   Currently, the storage and broadcast of pre-signs are performed by Stader. In the future, this workflow will be decentralized using one of the following options:
   
   a. Distributed Custody: We’re exploring methods to distribute the custody of these pre-signs, mitigating centralized points while broadcasting these messages.
   b. On-chain Exits via EIP-7002: This Ethereum Improvement Proposal allows withdrawal credentials to initiate the withdrawal process independently, regardless of the active key’s holder. This approach will help us move to a completely decentralized approach.
3. Socializing pool rewards distribution: A socializing pool is a shared address that receives Execution Layer (EL) rewards (MEV + priority fees) from multiple validators removing the uncertainty in revenue for node operators. Periodically, a node operator subscribed to this pool can claim their share of rewards based on factors such as the number of validators they operate and their performance. However, validator performance data is not currently available on the Execution Layer.

We have implemented a Stader workflow to address this to distribute socialized pool rewards to validators. The data for each reward distribution cycle will be made publicly available. To further decentralize this process, we plan to transition to an oracle-based computation model with data storage supported by IPFS.

Future of ETHx Oracle operations

Our Oracle operations involve a consortium of trusted entities, including Rated, select Permissioned node operators, Stader, and prominent members of the Ethereum community. While we have a robust system, we strive to decentralize our Oracle operations further.

We’ve identified four potential paths to this goal, each with its unique opportunities and challenges.

1. Expanding Stader’s Oracle set: This path involves two key strategies. First, by expanding our Oracle group to include more trusted members from the Ethereum community, we aim to enhance the diversity of the Oracle committee. Second, we’re exploring the concept of permissionless oracle node operators, empowering anyone to join and operate an oracle node for ETHx based on an objective criterion set.
2. Transitioning to the Chainlink network: Chainlink’s established, decentralized oracle network could handle our oracle operations effectively. While this move advances our decentralization efforts, we remain mindful of maintaining diversity in our system to ensure that reliance on any single external network does not compromise the resilience of our operations.
3. Leveraging roll-ups for Oracle computation and consensus: Rollups, a Layer-2 solution, allow us to perform computation off-chain while keeping data on-chain, leading to substantial gas cost savings. However, the technical complexity of roll-up technology requires a diligent assessment before implementation.
4. Eliminating the need for Oracles as technology advances: EIP-4788 proposes integrating the beacon chain block root into the Ethereum execution layer. This upgrade lets smart contracts on Ethereum prove the inclusion of values in the consensus layer state (like staking balances), potentially eliminating the need for oracles as technology progresses, especially with liquid staking token protocols.

Future of ETHx Governance: Embracing community participation

At Stader Labs, our commitment to decentralization extends beyond technical advancements. We envision a future where the ETHx protocol is governed by the community, allowing every stakeholder to actively participate in shaping its destiny. Inspired by successful projects like Compound, we are developing a robust governance framework that empowers SD & ETHx holders to propose and execute changes to the protocol. This shift towards community governance will eliminate centralized decision-making, foster inclusivity and create an open ecosystem that can adapt and evolve in unprecedented ways.

Conclusion

In our pursuit of decentralization, we recognize the importance of carefully evaluating each path to ensure the highest standards of security, scalability, cost-efficiency, and adaptability to future developments. We are committed to serving the interests of our ETHx stakeholders and the broader Ethereum community.

Thank you for your continuing support and participation in this journey.

For any questions, please reach out to us here.

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