MEV Smoothing Pools: A No Brainer for the Solo Staker and Small LSDs | Pol Lanski - Dappnode, dOrg

[Music] all right yes exactly I am here to prove you all that participating in an me smoothing pool when you are a validator in ethereum is a no-brainer and we're going to talk about when is it a no-brainer and when it makes less of a difference all right so let's start with this 90% more rewards how does this sound you don't have to do anything and you can get 90% more rewards by participating into a smoothing pool the only thing you need to do is change your fear recipient to the smart contract of the smoothing pool you don't have to change the withdrawal address you don't have to do anything now does this sound right I see some some faces there going like nah well I'm going to prove it to you all right you're a solo Staker that means that you propose less than three blocks a year actually 271 blocks a year that's with the number of today 9,7 971 th000 validators now execution rewards have a huge variance and it's very hard to have a predictable reward because if you get Big M blocks you get a higher reward if you get small MV blocks or no M blocks you get no reward you can't rely on luck and but you can be lucky but it's impossible to know a prior whether you're going to be the lucky ones or not what does it mean to be lucky and what does it mean to not be lucky so let's imagine two validators two home sakers with their DB noes over there Ali is very lucky and Bob is less lucky Alice proposes in a year six blocks with huge M Rewards and Bob barely proposes one and it has a very shitty MV reward now it's better to be Alice than to be Bob but you cannot know in advance whether you're going to be like Alice or you're going to be like Bob Alice is happy Bob is sad okay let's see an example of what do we mean with a high Meb payoff it's for example almost 200 e Alis is very happy and the only block that Bob has proposed is 0.00001 e Bob is not happy let's look at more examples about what it is to about what it means to be unlucky uh there's a call a thing called the luck Factor if you're validators you're probably aware of this and basically it means how close are you to what you should have received if uh if you are closer to these 2.71 blocks per year that we were talking about right so there's people that are there's there's real this is actually a member of the DB node community and he's been so unlucky he has proposed absolutely zero blogs so far I do not know since when but that could happen that could happen all right so what is the solution to cover your asss against not being Bob the solution is to send your execution rewards all solo stickers should send execution rewards to a common pool and from this common pool we divide equally the rewards among all of the partition uh participants this way execution rewards are smooth now how do we do this well first of all why does it make sense why is this true true because we have a huge power distribution on how me is distributed there is if you put every single block ordered by me reward you're going to find that very very few blocks have a huge me reward and most of them there's a long tail with lower M Reward okay so that means that the million that is the reward where 50% of the blocks have more me and the other 50% have less MV that is closer to what you're going to get as a solar Saker with 2.71 blocks a year with three blocks a year and it means that the average moves towards this because the average is half of the area of this curve so it moves a lot closer to uh to a much higher reward okay so far so good everybody following okay now we can see this data from flash Bots flashboot has this uh this endpoint this data that they have and uh with me what they the average block reward is 1.38 and the median block reward is 0.

05 e okay now data as of today I took this data this morning a participant well the expected M Reward for a solo validator in a year going from this data from flash Bots is 0.15 eth in execution rewards again we're not talking about consensus rewards we're only talking about execution rewards okay 0.15 as of today the expected rewards as for a smooth validator in one year is of 0.33 okay that is 120% more rewards now I'm cheating because the smoothing pool has a function that is a donation function and you can donate to the smoothing pool and every single validator the donation will be distributed equally among all the participants in the smoothing pool now we put five E dbno to incentivize people to participate in the smoothing pool now if you take this 5 e out you still get 90% more rewards as a participant in the smoothing pool than not being in a smoothing pool just because of this effect of moving from the median towards the average okay and that is after substracting a 7% fee that is in the smoothing pool 90% more rewards if there were no donations which there's no reason to think that there's going to be no more donations we're going to talk about this later all right so how does the M smoothing Pool Works it has three parts an oracle a contract a smart contract and a front end and the Oracle takes care of the offchain calculations for the rewards and it creates a Merkel route and it commits this Merkel route in the smart contract so here we see that the users manage their validators through this UI they sign up they send their execution rewards to the smart contract and once the Oracle has committed the state root of the rewards into the smart contract through the UI the users can claim back these Rewards penalties if you miss one block nothing happens it's a warning you get a yellow card if you miss two blocks you're a lazy validator you get a red card you don't accumulate more rewards but you also don't lose because you might be you know you might be down you might be unlucky uh we're trying to be permissive here because we're dealing with solo sters and they're not expected to have a huge um up time or they're not expected to to to keep all of the time the errors might happen and we're trying to be permissive and if you cheat what does it mean cheating it means that you send your MV reward outside of the MV smoothing pool then you're banned forever and all of the rewards that you had accumulated you cannot claim them it is impossible and we'll see how it is impossible to take rewards from the pool if they don't belong to you we'll see how all right um Oracle things to know anyone can run the Oracle all of the data is only on chain and everybody can reproduce the Oracle now the Oracle the smart contract is a multi- Oracle and it accepts an N ofm Quorum and you have to be WID listed in order to submit the meracle route into the smart contract now speaking of the smart contract the smart contract is a pool so basically that's where you send all of your rewards and when you're allowed to claim you can claim your rewards from there it also tracks the subscriptions and unsubscriptions we're going to talk about the types of subscriptions in a minute uh front end you can manage everything from the front end subscribe bators unsubscribe them claim rewards uh and it guides you on all the steps that you need to do to change your free recipient and it even checks whether you're subscribed to an MV relay or not so it basically guides you now what do you need to join the Meb smoothing pool and earn 90% more Rewards than you would or 120% more rewards than you would as being on your own well you need to have an active validator otherwise there's 90% of zero it's zero so uh uh you wouldn't have anything you need to deposit uh collateral of 0.01 this is an anti-spam measure so people cannot just sign up into the pool and then uh never participa into the pool uh you have to change your free recipient to the smoothing pool contract and you have to have a withdrawal address because you manage your validators you manage everything from your withdrawal address there's two way to joins manual subscription meaning you put the 0.

01 eth into the pool to subscribe manually but you can also do automatic subscription automatic subscription is you change your for recipient to the smoothing pool and as soon as you put the first block in there we we know that that you're trying to participate in the smoothing pool and we start tracking you and and allocating um rewards to you now the optimal way of doing it is obviously through a manual subscription because otherwise you need to wait until uh you actually propose a block for the automatic automatic subscription to kick in uh important to know you can always leave at any time Bad actors people who are trying to cheat those are validators with the wrong few recipient means that people that are trying to get rewards from smooth but they're not contributing to smooth and that's the lazy validators the people that are accumulating rewards but they're actually not contributing to the pool because they're offline they're not actively trying to cheat but they're lazy so if the block has wrong fee recipient you lose your collat your collateral and you are banned you cannot participate anymore second protection you cannot claim until your first block is proposed and you can only claim whatever you have accumulated since your subscription automatic or manual until the block so that's that's how we make sure that during this period you obviously had you were obviously we're not trying to cheat okay um we're going to talk about accumulated and clal rewards in a second and I think I already talked about yellow red and bands let's see how this works I subscribe to the pool manual or automatic it doesn't matter and I start accumulating rewards at T1 I haven't proposed the block but if I go into the UI I can see that I have some rewards accumulated now I cannot claim these rewards and I will only be able to claim these rewards when I propose a block then the accumulated rewards become claimable rewards and I can take this out and do a party at home with all my rewards now important here at time three where you haven't proposed a block you're accumulating rewards but you can only claim sin here this is an anti-cheating mechanism this is what makes it so impossible to cheat because if you propose a block now if you the next block that you propose is does not have the Fe recipient set as the smooth you you keep the M Rewards yourself all of these accumulated rewards will get distributed to the pool now penalties Yellow Card same I subscribe I don't propose a block but I miss a block nothing happens I keep accumulating rewards no problem okay now what happens if I miss two blocks okay now you're being lazy now you get a red card because we're trying not to penalize a lot and you actually haven't tried to actively cheat the pool you have accumulated rewards until the point where your second block has not been proposed but from here onwards now you're not accumulating any rewards until you propose a block when you propose the next block you'll be able to claim until here and then you'll start accumulating as if you were on the subscription okay good that's how it works that's basically how it works that's why it's impossible to cheat you cannot take you cannot take anything out of the pool unless you are you contribute to the pool all right now me is a centralizing force that plays against the home sticker that's why we built the smoothing pool you'll realize that uh big operators uh centralized exchanges uh big pools they naturally have a smoothing effect that means that if you get a lottery block that goes into a light of validator it's not this one light of validator that gets all the lottery Block No it smoothens out across all the light of validators which means that nonsensically pools and centralized parties have higher APR of execution rewards than home stakers that's a huge centralizing force that goes against The Ether of ethereum M is a centralizing force so with the smoothing pool we try to level the playing field and go at least at the same level as the staking as the staking pools the benefits are very clear you stop depending on luck because you keep accumulating rewards no matter where you propose where you propose a block or not uh you'll still need to propose a block in order to withdraw what you have accumulated but you keep accumulating during the whole period now you don't miss second you don't miss high Fe season a few days ago and still right now we're having a lot higher fees than usual meaning that people that propose a block right now they're very happy because they're getting more than what they would have gotten 3 weeks ago if you participate into the pool you're always catching part of the action and finally and what people know it the most is the me Lottery blogs of course you gain all of the exposure to these Lottery blogs from all of the validators that are in the pool meaning that if you propose 2.71 blogs a year and we've seen how much of a power distribution that was it is highly unlikely that you'll get a lottery block not impossible but highly unlikely but participating in the smoothing pool you get exposure a lot more exposure to Lottery blocks so you get the same smoothing effect that we were talking about about light of validators right or big pool validators now why so I I hinted at we build this because we we want to level the playing field and why do we want to level the playing field because home sters contribute more to ethereum than your typical AWS or data center validator which is one of these big pools how because so you you'll think consensus wise the consensus layer the consensus rewards are exactly the same for one and for the other but there is another entire layer of resilience that depends more on solo stakers than on AWS so uh the centralization is a gradient with emerging properties what does this mean that if you have one node you have a centralized system end of the story if you have two nodes you have uh emerging properties like you know basic data redundancy uh not too much not very decentralized especially depending on where you run you have different nodes in different locations then you have resilience to natural disasters or a blackout in one particular region uh if you have nodes in different Power grides yeah blackout resilience again if you have nodes in different political jurisdictions when uh ethereum is declared illegal in one country you still have lots of nodes in other countries right so we can see nodes in different Hardware Hardware resistance uh different implementations of the clients that's why it's so important client diversity you have um more resilience to bugs etc etc and a whole bunch of system specific properties that depend on the network for ethereum etc etc now home staking is the gold standard of decentralization because it works in any country it works in different political jurisdictions it works in every machine etc etc we the the the protocol Builders designed it this way so it would be very resilient um it's small an Nimble and it favors variety um and and we we can think that ethereum is actually quite decentralized but it's not who knows what the Nakamoto coefficient is Spence shout it out that's right the number of entities required to compromise the network and in ethereum this number is two if we think about any type of entities we're we're talking geopolitical entities more than 50% of the network is in United States and Germany end of the story this is what I'm talking with AWS validators okay so we need a way to reward solo stakers more Stark net already did this they air dropped to all of the home stakers right um there was a lot of trouble ter some people were left out etc etc and that's why we built in in the smoothing pool a way to air drop directly into any single solo Staker you can donate straight to the pool and you're donating you're effectively increasing the ap of every solo Saker making it more attractive now this is dab node we make free open source software for people to be able to run their nodes and also Hardware we have 382 million self-reported as validating on dab note and this is my favorite meme that I created myself don't be a defi Crypt bro via Chad Staker thank you very much