0x02 is not for Home Stakers! Right?

Transcript

Hello hello. So, you are here today probably because of this very catchy name of the presentation. The OXO2 is not for home stakers. Or is it? Let's try to figure out. First things first, what's OXO2? I had a pretty good joke here about OXO2 being a digital decimal digit in a hexadecimal form, but let's skip it for now. >> [gasps] >> Uh and go straight to two types of withdrawal credential, two types of withdrawal credentials for Ethereum validators. Meet Alice and Bob. Alice is running a

let's call it traditional OXO1 validator and she deposits 32 ETH to her validator. Bob deposits the same 32 ETH, but to OXO2 validator. And at this point, there is absolutely no difference between Alice between the experience that Alice and Bob have. But as soon as Alice keeps running her validator and a bit of a rewards starts accumulating on her balance because of the fact that for OXO1 validator, two crucial values being min activation balance and max effective balance are essentially the same and equal to 32 ETH.

It means that anything accumulated above 32 ETH for Alice or for her OXO1 validator would be swept to her execution layer withdrawal credentials. And with the current sweep cycle being roughly 9 days, I believe. Each every 9 days, Alice receives a bit of a rewards. Uh so, what happens to Bob? Well, Bob, since he's running OXO2 validator, which is also called compounding validator, he will just accumulate his rewards on his validator balance and nothing will be swept.

Well, not for like infinite period of time. There is a threshold. However, to reach this threshold, we need to zoom out a little bit. Like that. And then we will it will take us an absolute eternity eternity to wait for the rewards to accumulate to this threshold. So, let's imagine that Bob also made a few additional deposits to his validator. And now Bob is sitting at a whopping 2048 ETH. Wow, 64 times more than OXO1 validator.

And after this point, the experience for the Bob would be exactly the same as for Alice because 2048 ETH, this is a max effective balance, the max effective balance for OXO2 validators. So, what we've learned about OXO2? OXO2 can accumulate or compound balance while OXO1 cannot. OXO2 require almost the same hardware resources per validator uh other than the requirements for uh pure DAS, which is data availability sampling for blobs, which depends on uh ETH staked and not on the number of validators. But the rest like producing

attestations, block, and so on is essentially the same. It doesn't matter which type of credentials you're running. And OXO2s are better for the network because as you've noted, you can fit 64 OXO1 validators into one OXO2 validator, which means that if all of the validators that are currently on Ethereum network would magically become OXO2 validators, we would see a drastic decrease in the number of validators, hence we will see less P2P traffic, less network congestion, and so on and so forth.

So, the overall conclusion here is OXO2 validators are good for Ethereum network, good in general, and simply good. But if they are good why do we see this? Um this is a picture that I stole from uh Buddha's dashboard which shows the distribution of the withdrawal credential types on Ethereum network as of March 27. And as you can see, 98% of Ethereum validators are OXO1 validators.

While only a few percent are OXO2. And those of you who are deep into math will now say, "Oh man, this is not a right picture to look at. The picture we should be looking at is the stake distribution cuz we all remember that OXO2 validators are larger, like 64 times larger potentially." So, I have this picture for you. Here it is. If we look at the total stake controlled by OXO2 validators, we would see that even though the number here is better it is still just 22%.

And it has been a year since Spectra hard fork where OXO2 validator withdrawal credentials were introduced and take my word, a fair portion of this 22% is not from consolidations, is from a recent massive stakes by ETFs and so on and so forth. So, why are we there? Why over the year we have made such a little progress? Well, according to Ethereum protocol sup- support survey the top one reason for large operators, large staking operators

not to consolidate and keep running their OXO1 validators is liquidity concerns around rewards. Remember the picture where we said that, "Okay, Alice receives her rewards at a regular basis while Bob to receive his rewards on a regular basis have to accumulate 2000 48 ETH first." So, that brings us to two main concerns. Those whom we can call big players, they want to have steady and predictable and hassle-free rewards even if they have less than 2K ETH or their bags of ETH are not like precise multiples of 2048 ETH.

And the other group with uh like the the line here is in my mind is those having 32 ETH and not having 32 ETH. Uh well, those not having even 32 ETH, uh well, for them the problem is that if we look at the current bond in a fractional staking solutions like Lido CSM or Rocket Pool, we will see that to have 64 validators, if we do just a simple math and multiply uh the bond by 64, we will see that in Lido CSM you need something like 100 ETH to run this uh 64 validators or equivalent of OXO2 validator and in Rocket Pool, it's like

250. So, they simply cannot afford this bond because they will automatically transition into big players. Is there a way to solve both of these issues? And I'm happy to say that yes, there is a way. And actually, there are two or maybe even three ways. But let's break it into pieces one by one. And we start with EIP-8148, custom sweep threshold for validators. This EIP is not implemented yet. It had just been proposed. So, the reason I'm here telling you about it is to convince you that this is indeed a good solution and we need to have it included in the H

star hard fork. So, remember Bob who had to accumulate 2048 ETH before he start getting his rewards automatically. But the question is, where did this number even came from? And why Bob should be limited to this precise number of 2048 ETH? Well, with EIP-8146, we propose to make this value variable or to be correct configurable. So, that Bob cannot can would not have to be locked into choice between like, "Do I want to have 32 ETH

or do I want to have 2048 ETH?" No. Bob will be able to choose to set a so-called custom threshold in ETH value up until which his OXO2 validator balance will accumulate and after which all of the rewards will be sent to execution layer uh withdrawal credentials. Let me remove the mouth. So, with EIP-8148, Bob can, again as I said, set a desired amount of ETH to accumulate, receive all of the rewards above this amount on execution layer withdrawal credentials in a same way he already does for his OXO1 credentials, and he can change the threshold anytime, like anytime and any number of times.

And EIP-8148 is also very secure because Bob cannot set a new threshold lower than the current balance so that he cannot bypass withdrawal queues and the rules of the withdrawal queues with this EIP. And if ever if Bob would ever want to set the threshold lower, he would have to do partial withdrawal first and then set the threshold lower. So, all of the rules of the protocol are maintained while Bob enjoys his incredible flexibility in terms of choosing this threshold. And Bob can only set this threshold from his withdrawal credentials. So, if we talk delegated staking here where validator is owned

and maintained by one party and the funds are owned and maintained by the other party, it will be those owning the funds to decide where and how this threshold should be set. So, to keep it simple, we believe that EAP 8148 is the simplest way to make OXO2 user experience great again. And if you think the same or if you have some concerns or if any of the things that I've mentioned right now made you interested, go check the full description of EAP, join ACDC calls to voice your support for this EAP because I'm not quite sure if all of you are aware how the process

of including EAPs into the hard forks works. Uh but the general idea is very simple. If even if the idea of the EAP is perfect, but no one is uh standing up and saying, "Yes, we need this EAP." Uh well, this EAP will never be implemented even though it might be perfect. So, let's not leave this EAP on the shelf. Let's have it implemented in the H-star hard fork. Moving up next to a second part which would answer the question about small home stakers because as you remember, in the initial problem statement, we had two questions. So, what about small home stakers?

Well, here it all comes down to our beloved CSM. For sure, it couldn't be me on the stage not telling you something about CSM. So, I believe that OXO2 withdrawal credentials and CSM is actually the perfect match made in heaven. Let me quickly tell you why. First, let's imagine that our EAP, our EAP 8148 is implemented. Congrats, super cool. How can we evolve CSM in this case? Well, in this case, we can do something about the thing called bond in CSM. Right now, the typical bond requirement in CSM is 1.3 ETH per validator.

Because we use bond to cover potential penalties associated with, you guessed it right, the validator. And the validator uh being OXO1 validator has a fixed balance. So, we have a model where the bond is per validator. And if we simply transition to OXO2 validators, we would have to account for the full potential validator balance and we will talk about that in a second. But with EAP 8148, what we would be able to do is we would be able to transition from model where we have bond per validator and we will be able to transition to a model where we ask for bond per ETH stake because we

now will have this custom threshold. So, it would not matter how much ETH you have. If you can afford the minimal starting value, let's call it 1.5 ETH and then you got 0.5 ETH more and then 0.5 ETH more again. You will be able to set a custom threshold for your CSM validator to a value that would precisely correspond economically and from the security standpoint to a to the amount of bond you have. So, that would allow Lido to not just to migrate curated set to OXO2, which is already in progress like we are already passing through the audit, not just to introduce a full bonded CSM for OXO2 validators,

which I'm going to talk in a second, but transition the whole validator set to OXO2 credentials exclusively. So, CSM plus EAP 8148 will make OXO2 available literally for anyone. If you can afford starting bond, you will be running OXO2 and this is better for the network, for you, for the protocol, for anyone. But as I've mentioned, it is not guaranteed that we will be able to pull pull off this EAP and well, I hope that core developers will hear me out and you guys will hear me out and we will have it implemented, but what if there will be no such a thing as EAP

8148. Is there an option? Yes, it is. We call it OXO2 CSM, a very simple version of CSM that would simply do the following. We will assume that you have to provide a bond for the full OXO2 validator. However, given that the risk profile for the large validators is slightly different from the one for the small validators and it all basically breaks down to potential MEV stealing, the bond for OXO2 validator in OXO2 CSM will start from 32 ETH and might even go a little bit lower like to a value something like 30 ETH per validator

introducing a an incredible opportunity for those who are willing to home stake, who are willing to do a fractional home stakers and to be fractional home stakers. And we do know that there are a lot of people having more than 100 ETH bond in CSM right now on mainnet. They will get the opportunity to tap into a almost 2.3x APR multiplier with no decrease. If you look at the graph which well, which is shown pretty damn good cuz we have a great screen here for ICS, you can get higher APR values. Yes. But this benefit is limited to a very first validators

and after that APR goes down. But this big fat blue line is that is what we have for OXO2 CSM and this line never goes down. So, it opens a great possibility for those willing to do fractional staking and having more than 32 ETH to get incredible multiplier because we hear talks here about, "Oh, let's cut issuance." Well, my personal opinion, I'm not for it. However, if it will eventually happen, we will need to have a decent incentive for people to keep home staking. And if we can have this great multiplier, well, it would be better than than a kick in the

nuts, I would say. Anyway, uh the rest will be the same for CSM. So, OXO2 CSM is uh coming to you very soon, guys, quarter 3 2026. And yeah, that was a bit of a sales pitch. But what I wanted to say is that OXO2 withdrawal credentials is or are, depending on plural or singular, for home stakers thanks to two things. EAP 8148, which I highly recommend you you to check out and voice your support or maybe ask questions or maybe not voice support, and OXO2 CSM.

Thank you so much. If you want to learn more about EAP, scan the QR code to the right. If you want to drop me a message and say something about what I've just told you, drop me a message in a Telegram and I'll see you around. Thank you. >> [applause] >> I think we have 2 minutes for questions. Do you have any questions? Uh would Lido non-CSM also consolidate the validators if EAP 814 uh 8148 is implemented or uh

is this influenced by other factors? Yeah, so uh EAP 81 8148 is not about Lido consolidating or not consolidating validators. The The current plan for Lido is to consolidate curated set by the end of tw- current year or maybe like by the very beginning of the next year because it takes some time to do consolidations and the tech to consolidate all of the curated set is currently undergoing audits. So, it doesn't matter if we have this EAP or not.

80 9 89% of Lido stake will likely be consolidated by the end of the year. Some of the stake in CSM would likely be migrated voluntary by CSM operators to OXO2 CSM that I've just told you about also approximately in the same time frame. And what what we need this EAP in Lido specifically for is to do this final last mile. But the idea of this EAP is less about helping Lido and more about doing something about consolidations with the rest of the network because even if we consolidate whole Lido tomorrow, we will go from 22% of ETH stake being controlled by OXO2 to something like

48%. less 45%. Which is still very low. So, I personally believe that we need to do something about it if we want fast finality and so on and so forth. And according to the talks with professional operators, with home stakers in Argentina, I talked with like at least six people who told me that they need something like that. We believe that with this EAP, we can improve the situation with consolidations outside Lido way more than inside Lido. Heidi my Thank you for the talk.

I was wondering since this new curve is going to go up, won't that like encourage large stakers to take over CSM? That's a great question. So, there is always a problem of how to balance between those being large, between those being small. And let's move back to the curve. Why not? As you can see, for the small players, there is still an explicit incentive. So, if you start low, you will be always in a better position than those going high.

That's the first thing. The second thing, we already have a lot of big operators. So, if we already have a lot of big operators and they're currently running OXO1 keys, that would be an absolute mistake not to convince them to move to a new OXO2 keys because if we want to make it better for the network, there should be an incentive. And the incentive here looks as follows. We keep the premise that for small players, you can still get better conditions. But as soon as you surpass the threshold after which you can transition to OXO2 validators, we want it to be economically more efficient to use OXO2 within Lido CSM compared to using OXO1.

So, that we will have as little as possible OXO1 validators while still offering a noticeable benefit for small players. Thank you. Do we have no more questions? Thank Thank you again, everyone.