Tomasz Stanczak I Upcoming EIPs You Should Care About | Nethermind I Pragma India 2023

[Music] what is reaking toas what is restak reaking is uh taking the if that you have staked on ethereum from your validator 32 e right like so for a solo stakers it will be 32 e per validators um and then somehow using it for securing some other part of the protocol or it can be an oracle it can be other Layer Two it can be actually any any system that requires a deposit that is somehow slash that protects the security of that system uh we see we see protocols proposing the reaking solutions I layer is the one that uh that's probably most well known and yeah this is I think it's this that's just this so why would somebody want to restate to secure a different protocol as for for the users they want to restake to get additional yield like like someone promises them that that uh you'll get more more of yield if you restake your if uh as for other protocol why do they want reaking is because they may consider it complex to establish a trusted staking solution for their own Protocols of Security Solutions and say okay we have ethereum of all the ethereum research and legitimacy and people are used to all the tooling around staking on ethereum so why don't say I need just that security I'll use the validator from ethereum and operators they're already very sophisticated so they very likely I'm not only borrowing the security just the St th but also the quality of the infrastructure teams all right so so you don't have to effectively bootstrap your own network and figure out a new economic model to kind of have people use the service uh yes exactly so so I think it opens a lot of like the path for many of the startups like if you if you build the startups and you say Okay I want to launch the protocol it feels like protoc launching a protocol is a bit like less intimidating now right so uh I think it's all about this like building this composability that's like the new ideas can be deployed much easier uh without having to hire all this like uh very very heavyweight Engineers okay so so now that at least I have a good intuition about this uh I get to be slightly better at asking the next set of questions um ethereum ecosystem of course has this minimum 32 we requirement for you to stick and earn a yields but we can't expect everybody to have enough money to buy 32 e or over time so there's a lot of strategies people get to pull together and and use different services to make that easier um and and we kind of see that a lot you have kind of Rocket pool you have Lido you have a few other protocols out there and they are massive operations they represent a big chunk of all stake ethereum and uh and that means we have to kind of think about how those ecosystems are evolving as we update the ethereum protocol itself so before we jump into those four eips that that we care about maybe it'll be helpful for you to highlight what are some upcoming challenges that exist in in the world of staking like what are some upcoming problems that we see or things we would like to see but aren't there yet or kind of I mean how does me come up here now all the kind of complexities that make the next few years interesting I think challenges came from the combination of the fact that it's part of the financial markets part of the prodical design um part of the Innovation space right so so all of this together says that every every month there's something new that's that's attacking designers of the protocols and maybe just to kind of ask when you kind of think about security of those assets is that on the financial or economic or is that a different category to to you um when I think about security of the state assets I I think that primarily I think about the protocol um like what are the re to the protocol because something is MISD designed and maybe obviously like from the perspective of delivering uh delivering solutions for institutions I I have to think like at the top priority of the securing their assets right so also but this is more of the infrastructure question so if if I think about a protocol it's designing the protocol security if thinking about the institutional clients then designing like the security for their their all of this is is mixed like so for protocol the securi risks of centralization risks of this Innovation like you see raking what if we if you borrow too much security if we um if everything starts getting slashed and you have this very complex interconnected system of where exactly your security is like what's uh where your stake deposits are really operating like what are they securing so it's massive risk for the protocol any any issues around the more complex sets of smart contracts you mentioned you mentioned Li you mentioned rocket B all of the solutions are uh sets of smart contracts that have to be audited verified and and kind of go through the different process than the protocol itself so like if we fail at the protocol you can assume that there is some core development uh assessment and and you start making changes and you budget if you fail when you're are independent operator of the set of smart contracts then there is some FR a lot of unhappy people yeah that's a bit that's a bit more of a tension yeah um so Financial that's yeah Innovation Financial protocol Innovation I think all those surprises like was a surprise sorry no that makes a lot of sense any other long-term challenges that you see like maybe how does me come into play here in the staking world saving well when we look at me and many other things it's about this are there any centralization risks and the centralization risk that very often arise from the fact that a single entity can start amassing a lot of uh a lot of capital and just keep reinvesting it into taking more and more of an advantage so some kind of monopolized in scenarios where and we see that like we keep asking like so if you really care about whether someone has more than 33% of the of the stake then what can lead to just more than 33% as it just like sometimes it's a popularity contest or like more like convenience convenience contest like I feel safer when I stake where everyone else stakes and then as a protocol we have to remind that actually you should feel a bit less safe when you stake where everyone else Stakes but it's l single point of failure situations y yeah um and yeah coming back to me because me gives a lot of like Capital as a result of very Advanced operations and it requires a lot of talent lot of skill and a lot of setup like the the the mode is very significant barriers of entry for the for the new entrance to the like Market making block building markets uh and there are some risks of vertical integration between all the components of the system when we when we talk about prop ERS Builders uh when we think about uh incentive for the financial markets participants to start operating validators themselves to decrease the latency for accessing the chain um yeah all right so now that we have context let's get into the actual stuff we wanted to talk about so there's four eips I want to understand how they affect the the staking ecosystem and landscape and uh and maybe before I do that who knows what an EIP is okay so this is great so just going to start throwing a lot of numbers and hopefully some of you can remember it if not don't worry we have this on video so we're going to talk about e 7002 e 7044 4788 what's the last one there we goes just quizzing you 7251 so let's start with the first one um EIP 7002 what is it and why is it important uh 7002 is the uh validator exit that can be initiated from the from the execution layer so why is it important they so maybe tell tell us what happens now and and what is this proposed uh what what is the state now right so uh when you want to exit from the network as a validator so like you deposit 32 e and you want to say okay it's enough like for a few months I was staking and I acquired some yield and I want to redeploy that Capital somewhere else I want to exit the validator um the thing is for any like solo operator or someone who just takes their own Eve uh they will hold the the pair of keys like they the keys for the uh for the actual validation and the withdrawal credentials so usually usually they belong to the same person for a solid Stak here but like much of the staking nowadays is separated to the node operators who are efficient in running infrastructure and the capital providers the ones who are putting Capital at risk and looking for the best operators and um you can imagine that they they usually what happens is the operator will run the will operate the validator key like so they can act because they need to do that to run the attestations proposals of the blocks and so on and it's all happening on the consensus layer on the on the consensus layer with the Bon chain because that's that's where you do the all the signatures that can be verified on Bon chain and because exiting the validator is initiating some action on the consensus layer that uh the validator key is required to initiate that action you have to you have to send the the validator exit sign it with the validator key and then the um and then the deposit is exited back so we've drawn to the uh to the address that is set up by day so I'm going to try repeat this live and and see if I understand it correctly so if I have 32 E I say I want to stake it I get a withdrawal key and a validator key so I have now these two keys I give the validator key to a staking service and also my 32 e and then now currently if I want to now exit and get my 32 e back plus whatever 5 6% yield I have to tell the validator that I want to exit then the validator has to tell the consensus layer that I want to exit yes so and then I have to give my withdrawal key again to the validator yes so the the thing is I I have to ask someone oh we would like to withdraw it and uh it means that the operator if we are separate entity can get keep me a bit like as I they can just say well we'll get to it soon no or or they may lose those Cas were less likely but it happened in the past but they simply we will keep our assets and this doesn't feel anymore like it's non-custodial and non-custodial is extremely important in the uh from the perspective of regulatory and and legal aspect like so so the node operator wants to just operate infra and say and go to the taxman regulator and say like we don't touch the the client's assets like we cannot really do anything with those assets uh there's this like one thing that they actually can just keep them and then the client loses access like cannot canot just force you that's not good not good at all and this is the initial design of ethereum what what happens like so nowadays the the thing that happens is that um you can actually uh what sorry the the arrangements between the note operator and the capital provider are that the uh the capital provider the stier will ask for the pre-signed uh withdrawals like the exit sorry now withdrawals but the validator exits so the the node operator will use their validator keys and prepare the messages that you can broadcast at any time and share them with you and say like here are the messages when you broadcast them then you can exit that's just like a hacky solution yeah it's it's very manual and okay so how does two 7002 fix this yes 7002 allows you to actually uh use your withdrawal credential so you like your address to which you'll withdraw the uh like exit the validator assets withw the assets use it for signing a message uh to be delivered to uh the consensus uh to beon chain and that will initiate the the exit so like you you're in full control you can just decide when to when to exit so that sounds like a pretty good win and uh it's a simple enough an intuition so that's great let's move on to the second EIP but there's uh I think there's one thing that it's very important about 7002 like it's a uh I that's why I think that we we should talk more about the CIP because I think there will be so many startups launched on top of those few eips because when you when you can start exiting validators you can start preparing some tooling that will allow people to programmatically decide when to exit the validator so you can deploy the smart contracts that will say oh maybe maybe I could keep observing the consensus a client Behavior maybe any risky situation whatever reasons like conditions I decide to to exit when uh when this happens like that anyone can invoke it so someone can manage for you the the exits whenever whenever some conditions happens and the other thing which is super important is in the reaking world at the moment if if you're slashed um then the idea is that only after you will you will exit yourself somehow your assets will be assigned to the protocol that you were protecting right like you were slashed but that it's a bit like a delayed uh delayed slushing like you with the reaking you're punished but well if you leave the assets forever interium they would keep just amassing the yield but now the the solutions around reaking can automatically during the slashing also give it back force you to exit the the validator oh amazing okay should we go to the next one sure 7044 what is it and why does it matter this one is much simpler actually so so now when we explained all of this 7044 is is uh is an easy one so this one comes in the upcoming fork and but it will have is um that message that we said that is nowadays arranged between the operator and the Staker uh that pre-signed validator uh exit uh at the moment it's protected because in the past we were we were aware as cor development team that uh during some very contentious like large Forks social Forks uh on the network you wouldn't like to somehow reuse those messages on on B Forks so there was a design to prevent messages from more than two for in the past to be activated in the future so they kind of like had expiry time and well if you enter into this Arrangement between the node operator and the Staker and somehow the uh the relationship breaks for whatever reason that you don't want that message to expire so 7044 just fixes this and says like oh they don't don't expire anymore when you sign them then they will be always valid okay so that's a simple one cuz then after seven 744 you get to make 7002 even better yes so 7002 really fixes it properly 744 is like just a a short-term fix that we can use for uh for the current states awesome should we move on to the third one yes sure 4788 yeah that's uh probably the biggest one for creating startups I think let's well I guess hopefully people are listening yeah yeah I hope I hope that people will be hacking around that SP 788 uh gives the access to the biton chain uh block routs uh from the execution layer what does it mean like I think nowadays the staking is not very programmable like so so we used to the ethereum that you have state and you can read everything about the chain and do so much because you start composing smart contracts and invoking things and uh and build liquidations defi people are very creative like and then you have this massive amount of data on the consensus side on the on the Bon chain that you cannot just automatically grab like an and and use for the conditions buil think of something happening uh and even even with all of this we see uh lots of successful defi startups that that somehow relate to that information but but use that information so like with oracles or or some other ways and here what we do is we take the uh we take the data from the Bon chain the the block route from which we can extract any information about like uh was the validator slashed what's the current effective balance of that validator um what's uh how what's is the number of of validators and so on and so on like so whatever you could imagine uh and and for example what like what are the rewards in the last seven days or last month now if you can introduce that to the defi side of the execution so now it's accessible with smart contracts yes so you can you can for example create some some kind of yield products that are automatically like uh create uh create R version where you split different types of rewards and you say like oh maybe I'll be red directing the normal rewards block rewards to one player M to another player uh well m is the separate part and the uh and maybe like the things related to number of validators and attestations to someone else uh and you can have like this fixed uh fixed for uh fixed for flaw exchange and you can also do things related to reaking once again because if you're reaking but you don't know really at what stage is the validator is it already slashed but you you think like oh everything's fine just avoid a lot of bad scenarios there's no security there uh also for the for the liquid staking I think for things like Lio tracking if operators are already exiting if they follow the requirements that sounds like a massive opportunity because now you get to offer these as Primitives and effectively create an even more efficient market yeah and it plays well also with 7002 like so those those two together give you like the full control connectivity between one buttonit with a a handful of conditions okay last one 7251 max effective balance uh so the increased max effective balance means that at the moment you have this 42 e which is like the activation balance but also max effective balance so like to get the first validator key you have to deposit 42 e uh but also above 32 if you start withdrawals if you set up the withdrawals like so you never you never amass automatically beyond that and uh why max effective balance is being introduced so initially my reaction was like oh why like we we want to use it technically because we sorry maybe you understand so you're saying Max effect active balance is saying that right now minimum and maximum is 32 e Max balance changes the maximum to to 2048 I think is a proposal but you can imagine like they maybe nothing like whatever but the minimum is still 32 yes so activation is still 32 if which means that you still need for2 for the for the validator to be operational um but you can limit the number of of keys that are needed for operating larger amounts so theoretically it targets the larger operators I it's usually Sol ster most of the Sol stickers probably don't have 2048 if um so it means like okay if I'm large operator I can limit the number of keys it's very important for the network because we don't have to share that many uh that many messages like there's much less burden on the network to exchange all the to track all the validator keys attestations aggregations and so on very much desired uh with with this change we aggregate that it's easier to manage the keys for institutional players uh but also it is very important for solo stakers uh they can start gaining the the value from the any amount above above 42 if uh without necessarily amassing another 32 like so I see so so just creates the pool a lot more just makes it bigger and and more efficient without creating all the multiple smaller ones to coordinate exactly for the large players it's easier to compound for the small players nowadays it's very hard to compound because to get you practically need to get 100% over time to get the next validator uh but now you practically can compound immediately you can leave the balance you can move the balance and say I don't want to withdraw I want to keep staking again well we cannot reuse the word reaking because it got that me I mean it sounds like to me that all of these are companies here once again all of these are companies now you can you can totally create an incentive around offer this interestingly okay well last question before we uh before we end this we learn about all these eips what is the actual status and timelines for them to become real so the 7044 goes in now uh 4788 goes live very soon and and is it part of the same next upgrade or is it yeah in in the in the Denco yeah so you can expect it uh in in q1 next year most likely and uh we've heard that before yeah each time and uh the 7251 is a bit longer weight however not necessarily because it's it's not that complicated so maybe if we start working on it maybe it will also make it to the not to this one but to the next for um in 7002 also something that we wait for but very likely in the fork after then amazing well thank you so much for that amazing conversation and hopefully you all know what's changing the world of staking eat please give me a round of applause