Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - EthStaker: Ethereum Staking Wars - Nixorokish & Superphiz

Episode Date: June 7, 2024

In a world where a handful of (centralised) entities hold the majority of staked Ethereum (either directly or via delegation), the network’s decentralisation and security might be in peril. While there are multiple proposals being discussed to address this pressing matter, from reducing issuance after a certain breakpoint (~30% of total ETH being staked) to introducing more severe slashing for colluding entities, education and guidance remain paramount. EthStaker is a community led project whose goal is to guide, educate, support and offer resources for stakers, in order to lower the barrier of entry for solo stakers.We were joined by Superphiz & Nixorokish, to discuss the current Ethereum staking landscape and what challenges need to be addressed to ensure the network’s decentralisation and security.Topics covered in this episode:Superphiz’ & Nixorokish’ backgroundsEthereum staking evolutionStaking optionsLiquid stakingCentralization risksIncentivizing solo stakingLowering ETH issuance proposal & network securitySolo stakersHow a healthy staking ecosystem looks likeThe importance of client diversitySocio-political collusionMisc.Episode links:Superphiz on TwitterNixorokish on TwitterEthStaker on TwitterEthStakerSponsors:Gnosis: Gnosis builds decentralized infrastructure for the Ethereum ecosystem, since 2015. This year marks the launch of Gnosis Pay— the world's first Decentralized Payment Network. Get started today at - gnosis.ioChorus One: Chorus One is one of the largest node operators worldwide, supporting more than 100,000 delegators, across 45 networks. The recently launched OPUS allows staking up to 8,000 ETH in a single transaction. Enjoy the highest yields and institutional grade security at - chorus.oneThis episode is hosted by Friederike Ernst.

We were hesitant to acknowledge as it grew. We wanted to promote home staking as the best solution. Liquid staking a whole lot more competitive than running a validator where you don't get any capital back. You can't reuse that capital and add risk to it to get extra reward. One of the things that we don't want in taking is colluding operators. We don't want Coinbase and Cracken to work together. We want them to be adversarial. 30% of the steak eat is in Lido.

That means that they are sort of a systemic risk in Ethereum. Can we slow down the amount of stake coming in, knowing that the majority of this is not the most valuable form of staking? There are changes being proposed to sort of favor home stakers and favor more decentralized forms of staking. Welcome to Epicenter, the show which talks about the technologies, projects, and people driving decentralization and the blockchain revolution. I'm Friedricha Ernst, and today I'm speaking with Superfiz and Nixo,

who are the co-founder and executive director, respectively, of the Reddit community Eastaker. So, before we talk about Reddit and sticking and everything in between, let me tell you about our sponsors this week. This episode is brought to you by NOSIS. NOSIS builds decentralized infrastructure for the Ethereum ecosystem. With a rich history dating back to 2015 and products like Safe, Cow Swap, or Nosis chain, NOSIS combines needs-driven development with deep technical expertise. This year marks the launch of NOSIS pay, the world's first decentralized payment network. With the Gnosis card, you can spend self-custody crypto at any visa-accepting merchant around the world.

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Staking with Kors 1 not only gets you the highest years, but also the most robust security practices and infrastructure that are usually exclusive for institutions. You can stake directly to Quaros 1's public note from your wallet, set up a white table node, or use the recently launched product, Opus, to stake up to 8,000 eth in a single transaction. You can even offer high-year staking to your own customers using their API. Your assets always remain in your custody, so you can have complete peace of mind. Startsaking today at corus.1. Nick's own Superfiz It's a

And it's an absolute pleasure to have both of you on It's kind of we haven't we haven't had a staking episode in a while So tell me about yourselves Hey so I'm Superfiz I have been an Ethereum since the Olympic TestNet Actually since before that since I read Vitalik's paper Introduced smart contracts to me totally didn't understand it, but I had this kind of gut feeling. And I've just been curious about

Ethereum since then. Around 2018, I got interested in proof of steak. That was about the time that the first model got discarded where it was Stake 1500 Eath. And it was totally reworked. And I quit my job and I was like, I'm going to promote staking. Like, it's the thing. And it's the thing. that I want to do. I felt passionate about it. And so probably since 2018, I have been just obsessed with promoting proof of stake on Ethereum. So that's me. What was your job before you quit it? So I was a school psychologist and a school counselor. I worked with kids and I loved it. But that's actually, that's actually weirdly in tune with kind of what you do for the Ethereum. ecosystem too. It's funny. I didn't think so at first. Yeah. At first I was like I'm not, I'm not, you know, I got a C in

intro to computer science. I, I've been a nerd my entire life and I've always been into technology computers. But yeah, I took psychology classes because they were easy and easy for me. They're not, you know, easy for everyone. But they were, it was in tune with what I know. And so I did this career working with kids. And I was a guidance counselor. And I do. I see a lot of parallels now between guiding community, working with people, encouraging people, being supportive, and sort of seeing the path forward.

So yeah, there are a lot of beneficial parallels. Everyone can't be a developer. Yeah. Think of the others. What would happen if everyone were to use gas? It's like, it's very parallel to kind of like, absolutely. Yeah. No, and I think kind of the ecosystem absolutely needs many, many non-deves, many non-deafs actually. But yeah, what about you, Nixo?

So I was like very, very loosely into crypto before I ever heard of staking before staking ever launched. But at some point I was just buying Ethereum and I kept seeing this number 32 thrown around and I was like, what is this? number. I'm very curious about this number. And mostly I saw it from from superfiz because we were both part of the e-finance community, which is another Ethereum community on on Reddit. And so I got, I learned how to stake myself. And at some point, I started answering a lot of questions in the e-staker subreddit. And Superfiz reached out to me and was like, you're very helpful. Can you can we get you to help more? Can we get you more involved? And so I got involved through.

Eastaker. And I used to be an oceanographer, and I actually left my job in oceanography because I was getting really into staking and really into this ecosystem, and I wanted to throw myself in completely. If I could follow up on that, I have always, and to this day, and even in this talk, Nixo answers things the way that I wish that I could. And so she, even in Reddit, Twitter wherever, You know, I answer and I'm satisfied with my answer. And then I read Nixo's answer. I'm like, damn, I wish I had said it that way. So the reason I'm so excited to promote and encourage her is because we're on the same wavelength in so many ways.

But she has an ability to say things better than I might have said them. So that's that's my excitement. That is such a wonderful compliment. I really like that. So, surface. So when you kind of quit your job as the school guidance counselor, how did you finance yourself? I mean, were you already very long, eth or kind of, how did this kind of, I mean, obviously, most people kind of have to make a living.

So kind of promoting, staking on Ethereum's, probably not one of the jobs in the school guidance counselor's list of jobs that you recommend to students. So how did that play out? Yeah, that's interesting. And I don't think I've ever actually answered this before. It was crypto. I also held Bitcoin and Ether. And I had several Dash master nodes. Or they were Darkcoin and Dash. And I really that year reached a point with my crypto investments. And this is around 2018, that I felt like my daily volatility was higher than my annual income. And that was just weird to me. I'm like, why am I doing, you know, this, which I loved it. I did it for 15 years. It was very rewarding. But it wasn't financially rewarding. And I felt like I could, I could make a bigger impact in a better, you know, a bigger impact in the world through promoting staking than

continuing to do this you know really non-financially rewarding thing and since that time I've I've I haven't had any jobs but I've I've had you know arrangements that that have that have supported me it has worked out really well like I mean

air drops or even just staking like staking still doesn't I don't have enough that staking pays all of my bills but it is a very nice foundation. Yeah, absolutely. So kind of when you came into this topic of staking, this was before the transition to

proof of stake, right? So how has the staker enthusiast community or the staker community actually changed since? It has been a, I would call it a dramatic transition. And in the beginning, 32 ether was not that expensive. And I can't really quote a price, but it was a couple thousand dollars. And so really anyone who or most people who were deeply committed could buy a full validator and a staker. With the changes in price and really onboarding more people who are speculative in nature rather than technical in nature, there has been a shift toward focusing on returns rather than focusing on securing the network. So this long shift has been away from individual takers and toward, you know, LSD's simple deposits, restaking, whatever pays the highest APY.

And I don't think it was unpredictable, but I guess I sort of hoped it would take longer than it has. What sort of topics are currently the mainstay of East Staker? Nick, I'll let you, I'm a little, I'm a little, I have turned more toward mainstream Ethereum the past few months. And Nix is still very deep in staking. So I think you'd be better for. So yeah, I'm full, I'm full time. I'm the only person who's full time at Eastacre right now. So I would say that the main things on Eastacre are, or in staking in general, is just making sure that staking is accessible.

for people. And so I actually, I just put out a survey of stakers because we were curious to see like what their pain points were and sort of what stumbling blocks. And I, I do have some, we were talking about like this, the makeup of stakers earlier. We were talking about like their technical backgrounds or the technical capabilities. And I actually do have some statistics from the survey. And it is, it is quite large. Like 90, 90% of people consider themselves having a technical background in staking or a technical background. 90% of people in staking consider themselves to have a technical background. So while it does involve some technical capability, people still need a lot of help troubleshooting and people

do wish there was some sort of plug-in-play option that you could just plug in and like earn money with. But the fact sort of is like you are at this point throwing down $100,000. into a validator. And so I think now the biggest hurdle that we sort of need to overcome is the fact that, and this is a really big topic that we're probably going to get into, is that the economies of scale are really hard to overcome. And we're seeing staking pools, liquid staking tokens, and big professional operators benefit more from staking than home staker.

are and it's making home stakers feel sort of like sidelined feel sort of like staking isn't meant for them and like they might be pushed out eventually because as the APR continues to go down, they're just less competitive than these big staking operations that can put up with lower APR for some period of time because they're not necessarily relying on what the APR is. They're relying on the fees that they're taking from the people who are delegating their stake to them. Okay, maybe let's kind of, there's a lot to unpack here. So maybe kind of let's look into the different ways that staking happens, right? Say, say I have 32 E's. So in principle, I could run my own validator. If I don't want to do that, what are my alternatives?

So if you don't want to run your own validator, you can definitely use a staking pool, and that is the option that most people are taking, because that means you don't have to be engaged in the ecosystem at all. You can take your capital, you throw it into a staking pool, they give you a liquid staking token back, and then you can take that liquid staking token and walk it over to D5 for some extra yield, which makes liquid staking a whole lot more competitive than running a validator where you don't get any capital back. You can't reuse that capital and add risk to it to get extra reward.

But there are also other options. So 32Eath is the minimum amount for a validator, but there are other protocols coming online that lower that financial barrier. And these have been a long time in the making. The one that's live right now is Rocket Pool, and that lowers the barrier to 8th plus 2.4 worth of their token in ETH. And so that sort of lowers the financial barrier, but it doesn't really lower the technical barrier. They have their own software that lowers the technical barrier a little bit, but you still

need to be using command line. But our big thing is we do want people running from home. Like, we don't necessarily want people throwing things in delegating capital because there's enough of that going on, and that's actually become really problematic. So I will just say, like, if people want to run from home, the technical barrier is a lot lower than people on Twitter seem to think it is. I think that people seek command line and it scares them. And I, I am not a super technical person. I came from science, not coding, and I don't know how to code, and I managed to do it. One of the really interesting things I heard you acknowledge is that you can get more right now

from delegating your eth to someone else and going through restaking or depositing it for yield. that is something that we, we, me, us, we were hesitant to acknowledge as it grew. We wanted to promote homestaking as the best solution, as the most valuable solution, the most rewarding solution. And only by acknowledging that the playing field is disparate, that you can make more through an LSD, that's the only way that we can tackle the situation and begin to improve it. And that's, I'm, it's a difficult acknowledgement, but it also brings the ability to change it. It also, like, I have trouble with that because so many people come into crypto as, as is normal, just wanting to sort of gamble, wanting to make some money. and I would say 95% of this ecosystem is throwing darts at a board hoping to make it rich.

But I believe in Ethereum as something that can level the playing field, something that can possibly like mitigate the wealth gap by reducing the amount that economies of scale are able to bring you to. And I think that it's very, very important that we pay attention to how staking grows up and how the consensus layer and the base protocol of Ethereum grows up in order to preserve that because I think that blockchain can actually like actually has the potential to be really dystopian if we have this insanely efficient surveillance system, but we don't have a way to protect against it being captured by just a few entities.

And so I think that staking is the fundamental way to protect, making sure that staking is decentralized is the fundamental way to protect that right now. And so the fact that you can make more on an LST right now is a little devastating because it means that we're losing this fight against making Ethereum anti-monopolistic. There are changes in the, there are changes being proposed to sort of favor home stakers and favor more decentralized forms of staking that I am very much in support of and I hope that they get a lot more support because I do still think that Ethereum can be this really ideal endgame where the financial system is run in a much more equitable way. Can I high-five you in the screen? Sorry. That's why I listen to her.

Sorry. Let's talk about liquid staking. So kind of like the liquid staking kind of, it means you can kind of delegate less than 32E to kind of say Lido. And basically they will generate yield on that for you. But at the same time, you get a liquid token back that you can use, for instance, as collateral in, say, a lending pool where you can kind of bar. say, eth against this again and you can stake. So basically you can kind of generate yield on this multiple times, which you can't if you're a home staker, right?

So which is why in addition to kind of being technologically much, much easier because you just have to press it. It's just pressing a button, right? I mean, basically anyone who has used Lido, it's very easy to use. So in addition to being easier, it's also more lucrative, which is why pretty much around 30% of all staked east currently is in Lido. So kind of can you walk us through the issues that this kind of presents? Yeah. So it's definitely more lucrative, but it's also more risky.

When you stake all your risk is with the beacon chain contract and with the staking contract and that's it. When you are using a liquid staking token, your risk is with the staking contract, with the protocol, with the smart contract of the liquid staking token. And so it introduces a lot more risk into the protocol. And when we have a situation right now, like Lido has 30% of the, the staked Eath is in Lido. And that means that they are sort of a systemic risk in Ethereum. And so if there was a bug in the Lido staking contract, that would not just be an issue for the people holding liquid staking tokens. It would be an issue for all of Ethereum, for everybody who's

holding Ethereum for the entire crypto ecosystem because Ethereum is such a large part of the crypto ecosystem. And so it would be one of the, one of the, you know, of those situations that you see in the news where it's like some large collapse and people who had open positions get liquidated. And so this is not just an issue for stakers. This is not just an issue for eath holders. This is an issue for the entire crypto ecosystem. Fiske, like, can you think of any? I wanted to piggyback on that. I was trying not to cut you off. But there's a more long-term and transcendental risk as well that comes from that kind of centralization. It is that adoption states that makes over the long term. It's that when nation states, when corporations,

when three-liter agencies look at Ethereum, they're actively evaluating to determine whether it is a truly decentralized platform. Can we operate on this platform or can we manipulate it, maybe. And for for those actors to have the confidence that Ethereum is a truly decentralized platform, we need to ensure that there aren't these large actors who could control the network. And that feeds into our long-term value, into our 20 or 30-year value, because the failure of those large actors to adopt, because we're centralized, will have this long-term negative effect. But it's not obvious right now. Right now, you know, you're hey, I'm getting, you know, 10% APY,

but that sacrifices our long-term ability to, to dig into the potential user base. Fis, when you say control the network, what exactly do you mean? Do you mean kind of like censor people or take away funds from people? Or what's kind of the threat scenario here? High verbally.

At 30% I would say that there is no technical risk. But in the long run, if Lido continues to grow, one of the things, honestly, I try not to talk about them too much, I'm not interested in giving them a lot more publicity, but they're developing, I think it's called Lido Alliance, and they are organizing other operators as kind of a cohort.

And one of the things that we don't want in taking is colluding operators. We don't want a large, we don't want, you know, Coinbase and Cracken to work together. We want them to be adversarial, maybe friendly, but adversarial still, so that they're not colluding to make decisions later. If there's a large alliance of stakers, a formal alliance of stakers, then they have these back channels where they can say, hey, you know, I don't, I don't like this initiative. Can we shut this down at the developer level? Or, hey, can you get your people to vote for this? Or if they even were able to control 50 or 66% through this kind of collaboration collusion, it is possible

that they could change the future of the network. And so it is not, I can't call it a, a current threat, it is a potential threat that is continuing to grow. And that's why we're cautious of it. Okay. Yeah, so I see that. So, Nick, so you said earlier that there are ways of kind of that are being discussed of making solo staking more attractive. Can you go into those a little bit? Yeah, absolutely. So there are lots of different variables that can be messed with in order to make decentralized forms of staking more attractive. But there is not a full-fledged proposal right now. Our best proposal right now is basically saying all of the new steak that's coming in, of all of the new stake that's coming in, 90% of it is coming from liquid staking protocols,

from staking pools right now. And so we are trending upwards. We have not seen a dip in the demand for staking. Like I think right now, the queue just emptied out, the staking queue, the number of validators coming in every epoch, just emptied out for the first time in maybe more than a year. So the staking queue, the amount of staked eath, people throwing capital in has been up only. And so there is a potential, there's potentially a situation where we end up at 99.9% eath staked. And in that situation, because we know that the majority of the home stakers, the people who are the most decentralized forms of staking,

came early on to the beacon chain, and they represent now a very small amount of the new stake coming in. Can we slow down the amount of state coming in, knowing that the majority of this is not the most valuable form of staking? So this change is the name of this really contentious thing is issuance changes. And so it's basically the reason it's so contentious is because it's basically changing the monetary policy of Ethereum saying we're going to change how Ethereum issues ETH to the people who are securing the chain in order to slow down stake. And what this is is a mitigation proposal for, it's an intermediate proposal for a proposal coming later on.

And the things that can be in that proposal later on are messing with a number of different variables to make decentralized forms of staking more attractive. So right now this is just a simple issue. The proposal that exists right now, lowering it. issuance is just a very simple change, it's just lowering issuance so that staking is less attractive in the, like right now, so that we can propose something later on. What can come later on is something like correlated staking, correlated offline penalties. And so this is something Vitalik proposed. And basically right now what we have is correlated slashing penalties. So if somebody

attacks the network. Somebody has a thousand validators that all double sign on something or all tried to change something on the network. We see that they have a thousand validators and we slash all of them. The network, the consensus rules slash all of them and apply this factor to it saying a lot of validators got slashed at once. It looks like you guys are colluding. So we're going to slash more of your capital than it would if you were just one staker who like messed up and double signed or did something silly. And so what we could do is apply that correlation factor to people who are staking. So say, I'm a professional operator who runs 10,000 validators and I have a power blip,

and my state goes offline for 10 minutes and I missed two attestations. The network could see that 10,000 validators missed two out of stations and apply a correlation penalty to that stake that says this stake all looks like it's run by the same operator. So we're going to give you a harsher penalty. And that would preferentially benefit small stakers because they wouldn't experience that correlation penalty. And so that's just that's one of the things that could be applied to the eventual change that we are trying to, um, that we are trying to, um,

that we would like to implement some intermediate change that gave us time to implement that. It's worth saying that even among people who are deeply aligned, like even with people that we share a lot of values with that we see Ethereum the same way, there's a lot of consternation about this because it changes the monetary supply because for some people there was a promise to users that this is how things were going to go forward. But Nixon, I don't necessarily see that there has been any promise to anyone. We see that this is an emerging technology and that we ought to continue to develop it and really kind of shepherd it and safeguard it until it is really hardened and calcified over the long run.

And if you look at these proposals, like the majority of the criticism that you see, at least where the criticism originates, if you look at the... at the people who are most strongly criticizing that, a lot of them are associated with liquid staking pools. And so like, that sort of tells you that you're hitting the right pain points. But then they bring out these arguments that are like, oh, this will hurt solo staking or this isn't good for the network. And it's a scare tack. It's a scaretack. It won't you sick up the children? Yeah. So it scares the rest of Ethereum's because they're being told this, this proposal is the end of the world. And the amount of sort of capital that you see going into propping up those

concerns is concerning right now because right now the financial interest in preventing those changes is the least it will ever be from now on. Is the minimum that it will be from now on? As we get further and further along this stake rate, like right now we're at 30 percent. We could be at 40% in six months, we could be at 50% in eight months. That criticism will only go up and it will be harder and harder to implement changes that hurt the people who are benefiting best from the system right now. The people who are benefiting most from the system right now have the most financial interest to stop these changes because incumbents like to keep things like the status quo

because that's who is benefiting. And it's funny because their arguments, arguments don't sound selfish. Their arguments are, this will harm home stakers. You must hate home stakers if you want to do this because homestakers are the most valuable thing and you would harm this by doing this.

And those arguments come from constituents who don't actually represent home stakers, but that is their argument. And they're doing things like working to, get developers on the core developers call. Like, we need to do more research and include our developers in the core devs call. Those are the kind of tactics that they're designed in the long term to derail something that is really better for the network in favor of their interest. There are homestakers who are against these changes. And I don't want to, I don't want to dismiss their

concerns because there are, I know, I personally know homestakers who are against these changes, and some of them run thousands of validators, but I would also argue that somebody who runs thousands of validators as a homestaker is just as valuable as somebody who runs one, one validator. What we're really looking for is millions of validators all around the world. Yeah, can you clarify the exact intermittent proposal again? So basically, is it to kind of cut off new people from staking or lower the staking rewards for everyone who's currently staking and will be staking in the future. So basically, is it kind of leveling the playing field or is it just kind of drawing a line where you say everyone who stick before this point is still

good and everyone after. No, that would be terrible. We acknowledge that that would be terrible. So basically, you have an x-axis and y-axis and this is the amount of stake that or the amount of APR that people are getting. The less stake that is in the system, the more APR people get. And so that's just taking this curve and moving it down. So it's just lowering APR. So, okay, everyone gets less. Yes. Up to 100% stake, E, there's still an APR. There's a return. And it could be lower and lower. What we're really interested in is changing that curve so that around 30% of stake, 25% of stake, that rewards, this is complex terminology, rewards actually become negative.

So the closer you get to 25, 20%, 27%, whatever that sweet spot is, your rewards trickle down to, you know, 1%, 0%, 0, and then a negative return. And yes, that will cause some people, some entities to withdraw from the network. we believe, and there are really two interesting angles on this, we believe that that will lower interest in liquid staking tokens and that many home validators will still survive that. So it is a cut, but it is a beneficial long-term cut.

And the other side of that is, if a maximum of 30% of ether are staked, then ether holders, ether is still the currency of Ethereum. stake or an LST provider that controlled 80% of staked eth does not control the network. Ethereum holders who hold the other 70% of ether, they are still the stewards of the network, not someone who holds a third-party token that is, you know, then the, that is potentially the money of ether, if that makes sense. Yeah, that makes sense. So is the idea that the network security doesn't benefit from kind of people, from the 31st to the 99th percentile of East staked?

So basically if every single ETH were to be staked wouldn't make the network any more secure than, say, if a third of ETH were staked? That is correct. We don't have an exact number, and that is a criticism. We don't have an exact number for what is needed to secure the network. I've heard estimates that are anywhere from 1% to 12% of all ether needs to be staked in order to secure the network. We're at 30-something percent. Everything above this is superfluous and everything above this serves validators.

And validators aren't meant to be served by the network. They are in service of the network. Okay. And so basically you just said that kind of the APR depends on kind of where you are on this. So how many people are, how many validates are staking at the same time, right? So basically, but everyone makes the same APR regardless of when they started. So basically, if more people come online, then everyone gets less, right? That's kind of the basic mechanism.

Correct. Okay. Then let's talk about kind of solo stakers and what an ideal network kind of what would look like. So basically, having outlined kind of all of the drawbacks of being a solo staker, you need to have like some technical background even if you're not a dev kind of at least you have to be kind of like happy using command line and so on

and I mean there are also somewhat plug in play systems so kind of you could buy a debt note or Navado and kind of it's it's not really like you plug it in in the power source and you're good but kind of it lowers kind of the barrier to kind of entry for for people so the large capital requirement aside. So those are people who kind of have a hundred thousand dollars in

ETH lying around. Who stakes and why do they stake themselves? So I would say the people who stake are the people who want low risk returns. People who have low risk returns and people who are at least technically confident enough to know that they can copy and paste from a guy They can use command line if it's copying and pasting from a guide. Like I said, 90% of stakers consider themselves technically competent. It also, one of the big barriers is internet connection is bandwidth. And so we do see that 95% of people who report staking are either from North America, Europe, or Australia. We see very few stakers in Latin America.

we see almost no stakers in Africa. There are some in Southeast Asia. Singapore is a hotspot for note operators. And again, that's a lot about the capital requirement. But a lot of that is about the network requirement too, because I'm in South America right now. Here in South America, it's harder to have a stable internet connection outside of very urban regions.

I'm in Buenos Aires and Buenos Aires has great internet, but outside of this very small capital, 50% of the country is in poverty and they're just not serviced. They don't have the infrastructure that's needed to, even if they could procure $100,000 or whatever the minimum requirement is for a protocol that lowers the financial barrier, they couldn't necessarily set up a node that could keep up with the bandwidth requirements. But a homesick, in your definition, is someone who actually runs the physical infrastructure at home. So kind of if I were to have

like an AWS node, I wouldn't be a home staker. Is that correct? You wouldn't be a home staker, but you would be a remote staker. I still consider those valuable players. They're not as valuable as a home staker because somebody could turn off their node. But if you're running

a staking node that is in AWS or Cloudflare, or any contabo or any service that gives you you're the bare metal service or cloud service, you're still running the configuration of your node, and I still consider that valuable. You wrote a great disambiguation of that.

Where is that? It's on Eastaker's paragraph blog. Fantastic. We are linked to that in the show notes. It is a, she gives a great distinction. I don't recall seeing Remote Staker on there, but it really does break down the different kinds, of stakers and the value they provide to the network. I was impressed with that.

Okay, so let's look at kind of a healthy staking ecosystem, right? So basically what do you want to avoid is that nodes are too correlated with each other. So kind of there's different dimensions that we can think of that kind of they could be correlated in. So kind of there's very physical ones like location and jurisdictions or kind of you could have a natural disaster, say an earthquake or volcano. You could have a jurisdictional. lacks one event where, for instance, I don't know, the government says everyone who takes ethers, provides a security, and if you don't turn it off right now, we will come after you sort of thing. And then there's using cloud providers, right? So basically, if everyone uses

AWS, then kind of obviously kind of the bottleneck here is AWS. And I mean, if you look at what cloud providers are out there, basically there's AWS and Google Cloud and Hatsner, and then everything else comes like, you know, very distant third, fourth. Then there's clients, right? So basically we have beacon and execution chain clients. So kind of if you have a client bug and kind of say 50% of the network use a single client, then obviously that part of the network would come down. So how do you see all of these dimensions, which are critical at the moment, which are you

paying attention to which are we doing okay on? I would like to let Nick's answer, but I also want to include that social coordination, and that is that collusion between multiple operators. But yeah, and Nick's, you're probably more attuned to answer the whole question. I would say let's do three major categories. Software diversity, hardware diversity, geographic diversity. But software diversity is talking about the consensus layer clients, the execution layer clients, and that is, that's a really easy fix for node

operators. You run a campaign that basically says, like, run a minority client because there are all these terrible things that could happen if everybody is running the same consensus or execution layer client. And that's often misunderstood as like an altruistic endeavor. Like, oh, if I wanted to be selfish, I would run the super majority client and I would be fine. but that's not how it works. You put yourself at risk if you are running a super majority client. So I think the Ethereum community has actually shown a great deal of motivation in changing that. And FIS sort of led the initial call for consensus layer client diversity.

And then there's hardware diversity. And I think we're actually doing great on that. In terms of hardware, you don't want everybody running the same PC, the same. the same hard drive, the same RAM, and really, we've done a really good job of making sure that people are running on different sort of hardware. It's funny you say that because I would love to see more platforms like, you know, gaming systems and toasters and refrigerators, like porting that to, you know, different arm style architectures and risk style architectures. Like that would be, for me, that would be real hardware diversity. That would be niche nerd stuff.

My Cassio smartwatch. Hey, somebody runs one on a vape. Someone actually runs a validator on a vape. It's kind of cool. I don't know if it's maybe it's just a... Okay, now that I said it, it sounds egregious, but I saw it on Twitter. So it's real. Yeah, it must be true.

That's right. Yeah, and then there's geographic diversity. And that, like, geographic and hardware diversity sort of overlap because you don't want everybody running in the cloud. and I think that Etherfi likes to tout this one, this one statistic that some percentage of nodes is run within like the 15 miles of the CIA headquarters. And I think that's because like that's where the maybe AWS

or some cloud service is reporting. That's where the CIA runs their nodes. Yeah, I think that covers all of the sort of. For you, what is what is geographical is geopolitical, is geopolitical social to me. Like that's all three of those together because it's geography, it's political, and it's social collusion

like these large people colluding together. It's anything that is not hardware or software is geopolitical social. Okay, let's talk about kind of the client diversity because that's kind of where currently the situation is most dire, right? So basically you said if I use a supermajority client, say I use Gath, which is in excesses.

of like 60% or so of the network at the moment as my execution layer client. How do I put myself at risk? Can I say first? I don't think it's the most dire. I think that social collusion is currently the most dire. But client diversity has the most attention right now. And so, yeah. Okay, let's talk about social collusion next.

So the way that you put yourself at risk, so say, So Geph is actually under, probably under 66%. And I say probably because our data isn't necessarily correct. We sort of have these probabilities. We'll just leave it like that. Technically, it is impossible to see what the actual makeup of the execution layer clients is. It's possible to see the consensus layer clients. But so say we're above 66%, and you are running the super majority client,

I'm going to name it as a different one because I don't want people to think Geth is a bad client. Like let's say Nethermind is above 66%. And I'm running Nethermind and Nethermind has a bug where they actually sign something that's incorrect. And they finalize it because it looks correct because if 66% of the network sign something that looks correct to them, they're going to continue on and it's going to take a while to figure out what's happening because what it's going to look like is that the minority clients are going to look like they're missing at a station, like they did something wrong. And so the supermajority client is going to finalize to an incorrect chain. And once the supermajority client finalizes to an incorrect chain, you can't come back. You essentially are

slashed for 100% of your stake. You can lose all 32-Eath because you can't come back from that. what would what's more likely to happen is there would be some bug where you just stopped a testing and so that's like sort of the second situation you stop a testing it's very clear that the super majority client is having an issue because the whole network stops finalizing and that's finalizing not progressing so people are still able to make transactions but they're getting reorged after two or three blocks and that means that like reorging is like the the your transaction actions can be reverted. And so that would be, realistically, what would happen is the devs would spring into action and there would be a fix put out within a couple of hours. But what happens in

that situation is that something kicks in called the inactivity leak. And that's, that is, the purpose of that is to drain these validators so that they represent a smaller portion of the network and the network can start finalizing as quickly as possible again. And so if you are in the super majority client in that situation, your validator starts getting drained at a higher rate because it's trying to get you off of the network. So either way, in these two scenarios, there's a third scenario that's even less, that's even less severe than that. But in those two scenarios, your capital is being lost.

And in that more severe scenario where you've lost 32Eath, all of a sudden, this is a whole network-wide issue because the people who lost their stake, who lost 32Eath, who right now are going to be 30% of the network, well, 30% of the portion that is staked, are going to be fighting to say, you know what, let's fork. Let's fork and let's remove this thing that happened and pretend that I didn't get slashed or let's fix this in some other way. and then you have the code is law people versus like the social consensus issue people and the whole network is thrown into this do you remember when the Dow hack happened and it was like a big issue so you basically have this situation again where I couldn't see being a business like an accounting business and saying like this is the network I trust like it would throw things into such content that I'm sure businesses would be like, this is not a serious financial system. We can't run a business on this because it's a mess.

So, Superfus, you said that you are most worried not about the client diversity issue. You're most worried about kind of the social political kind of collusion scenario. This is something I haven't really talked publicly about, but I feel like client diversity was a very big deal a year or two ago. Right now there's tremendous awareness about it. We have, we're over the hump. There's enough awareness that if we continue at our current pace, client diversity, I don't want to say it's going to take care of itself. It's still going to take a lot of effort, but the inertia is there. The real, my real concern about the success of the network now is primarily

social. It's not geographical or political yet. It is social and that is the idea of power seeking, which is natural and I'd have no difficulty with power seeking. I expect it in something this large. But

if any of those power seekers are successful, especially in what I'll consider this the youth of Ethereum, then it could have very, very long term consequences. And I care of not to name names other, you know, other than what I've already said, but it really just takes an entity or two entities to say, hey, we don't, we don't want this proposal that Nixo was

talking out to go forward. That would harm our bottom line in the long run. So let's just have a back channel here where we talk about how we can shape and influence governance to make sure that what we want is advanced. And then they, you know, kind of, put some money into it. Maybe they have researchers that they're funding and the conclusions of that research tends to support their foundations. Or I call them mercenary researchers. Or they are researchers for hire who will inevitably come to the conclusion that the payee

wants them to find. And they can be pretty compelling and pretty loud. And so that kind of social collusion. to me is our biggest current threat. And it's difficult because it's hidden and you don't always know about it. And you may never know about it. In fact, really effective social collusion is something you'll never know about. It looks organic.

It looks like something that the community wanted to happen. And so the way to prevent that kind of social collusion is to get as many, independent individual operator validators everywhere in the world so that they're all thinking for themselves. They're all saying, hmm, is this good for Ethereum? Is this good for my stake? Or is this serving some other entity? But isn't that just protocol lobbyism? So because we see that kind of like in in politics outside of, you know, Ethereum and staking and so on anyway. So how do you think we can create a staking ecosystem where that isn't a factor if it seems like it's something that naturally emerges in these situations?

Yeah, to call it simple protocol lobbyism, I think is an underestimation of the threat. Because these entities are, I don't want to make them nebulous, but they're like chameleons. they can appear to be anyone they want. They can come into a forum and say, I'm a homestaker, and this is how I feel, and this is why I don't want this to happen. I guess I'm most concerned because of the nebulous and chamellian nature of the threat that I feel like it's probably already bigger than we've acknowledged. And I do think it is far more significant than just protocol lobbying. I think it is large entities who are willing to collude to get. what they want.

I think that money can be a powerful motivator to get things done. And so I do think that lobbying can sort of be pushed and it could be guided in a beneficial direction. I think that these companies with financial interests can reasonably and valuably contribute to research. But I think that there needs to be a neutral sort of body who, is the layer between that financial interest and the people who are actually doing the analysis. Like, that's what universities are.

That's what research in general has always been. There's always been this neutral entity in between the people who want the research done and the people who the research benefits versus the people who are doing the analysis and can be swayed sort of to lean, to have bias. towards some outcomes. So I think I don't think it's impossible for companies with financial interest to valuably contribute to research. I do think that that's possible.

But if you kind of look at a research that we've seen come out in the past, so things like smoking is really good for you or best you can put into your body is like three Big Macs a day or something. I mean, obviously there have been researchers who've published these sorts of studies. usually then turns out that they were surprise, surprise, financed by big tobacco or McDonald's, whatever. So, I mean, how do you, and I mean, researchers actually have to disclose their financial interests, right, if they have them. So how do you see that kind of play out here? I think that we should leave science to the scientists.

Like, I don't think that a company should be bringing in-house, like a bunch of researchers who say, like, okay, we want you to study. this and we bring your results to us and we will give you advice on how it's going and then we'll look over the drafts and then we'll publish it from our research wing. I think that they should go to economy departments in universities and say we want to set up a one million dollar grant for anybody who wants to study the intersection of computer science and economy. And we're going to be hands off about it. You guys decide who gets this funding. You decide which PhD students want to study this.

And I think that that's possible. And I think that if you look back at like dubious research that's been done on like a glass of wine a day is good for you, that you'll probably see that there weren't very good. There weren't very good practices put in place. And I don't know. I don't have anything specific about that. but I'm betting that that was not, those were not very well-respected methods with those studies. I love that you brought that one up because that belief still persists.

Once you put the money and effort into promoting that kind of belief, even after it's debunked, it still has, it still pervades culture. Because it's nice to believe. Yeah. I want to believe that, too. Glass of red wine per day. I really think it's two drinks. How near here? It's like, yeah.

Just being healthy. Yeah. Like, absolutely. How much do you think this is a war that kind of has to be one on culture? I mean, so kind of should we kind of just establish kind of this is kind of what we believe in. As stakers, you shouldn't delegate to like large staking pools. So if you delegate, kind of delegate to your friend, don't delegate to like the protocol that already holds 30%. or do you think this is something that kind of has to be put into rules,

into like actually hard-coded rules? It's never going to work to make it like a social consensus because the reality is 95% of people, maybe even higher, maybe 99% of people who come into crypto, they're just throwing their dart at the wall. They're just hoping for the, they're just hoping to invest in the Google of 2000 and trying to make it big.

And like, if you think about it, that's what crypto has done. It's had big talk about like becoming a global banking, a global financial system that's accessible to everybody. But like if you put people who make a dollar a day in the same room as the people who make like $10,000 a day, there's going to be this hustle culture that comes from one side. And you can't blame them. You can't stop that. You can't be like, you should be more ideological because it's like they're trying to survive. And gambling will always happen. So I do think that crypto in general has been this idea of how do we take greed and how do we take normal human vices and use them, guide them, and make it so that those things are incorporated into a protocol rather than having to fight against it and having to tell people to like be on the losing end.

of a prisoner's dilemma. Like, I think that we should, we should try to account for human behavior rather than fight human behavior. I love that. I think those are actually really nice parting words. So if people kind of want to get involved in the East Staker community or kind of want advice on how to set up and so on, how do they find you guys? Our website is eastacre.cc.cc.

the Discord is really active and the subreddit is really active if you're more into Reddit than Discord people love people who come in and if you come in and say hey I'm interested in staking how do I start this people love to help fantastic then let's see whether

we get any new stakers interested it's definitely a super interesting community. To me it's always reminiscent of kind of you know kind of the maker communities. I mean not like crypto maker but kind of like

the people who like tinker with stuff. It's that kind of people who kind of end up in those and and they're fun people. They're good people. There's a big overlap too. Cool. And it's actually, it's really interesting

because to be in the community you kind of have to have some skin in the game. have to. We have people who don't stake at all. But, you know, many people have 32 ether. Many people have one ether. And you also have to have some interest in the long-term success of Ethereum. And so putting those two things together. And I'm not saying it's everyone, but a vast majority of the people have something at stake and they have an interest in Ethereum. It makes for a really interesting group of people who are really fun to engage with. And there's also some pride that kind of goes along with it.

I mean, basically, if you go to conferences and talk about staking, people who stake, they talk about this with pride. Like, it's like a part of their identity and kind of like self-description, how they see themselves, right? How do you know if someone's a solo staker? They'll tell you. Fantastic. It's been a pleasure having both of you on.

And, yeah, keep us on our toes. You're keeping us honest here. the ecosystem. Thank you so much for having us. Thank you so much, Federic.