Written by: Staking Rewards
Compiled by: Peter Pan @BlockBeats
After the merger , Ethereum has switched to the PoS consensus mechanism. PoS has cultivated a staking ecosystem composed of participants, who play an important role in protecting the Ethereum network.
This article will break down the Ethereum staking stack in detail, show all the moving parts in the Ethereum Staking ecosystem, and clarify the operating mechanism of related staking methods. So understanding the subtle differences between these stacks and staking options will help users make better decisions when staking their ETH.
The stacks are read from the bottom up, with the Ethereum protocol as the base, followed by execution and consensus clients, middleware, DVT network, staking options, infrastructure services, staking pools, liquid staking derivatives, custodians, Wallets, data providers and tools, etc. However, the diagram may still miss some items, so it will be updated in the next iteration.
Ethereum Staking Ecosystem Panorama
Ethereum protocol
The Ethereum protocol is a set of rules for running Ethereum nodes, which embody the core infrastructure for thousands of decentralized applications.
Transactions on Ethereum are signed by full nodes, which broadcast signed transactions to a network of verification nodes, which execute the transaction (execution layer), verify its eligibility and reach consensus on the state (consensus layer/beacon chain). The new state is then stored again in the full node with the latest block.
The execution layer is managed by execution clients running on thousands of computers around the world. They maintain the overall state of the Ethereum blockchain while completing transactions using the Ethereum Virtual Machine.
The consensus layer is managed by consensus clients running on the same computer, which reach consensus among thousands of computers on the latest state of the Ethereum blockchain while verifying its accuracy.
client software
Ethereum is a distributed network of computers (nodes) running software that can verify block and transaction data. To participate in the Ethereum network, users need to install software called a client on their computer to turn it into an Ethereum node.
A "node" is any instance of the Ethereum client software that is connected to other computers of the Ethereum software, forming a network. But not all nodes on Ethereum are the same. They are mainly divided into full nodes and verification nodes:
1) Full node
Full nodes enforce the consensus rules of the Ethereum protocol so that they cannot be tricked into accepting blocks that do not follow them. Nodes will:
Sign transaction
Store complete blockchain data
Verify all blocks and status
Broadcast signed transactions to validator nodes
2) Verification node
Validator nodes receive broadcast transactions from full nodes and then execute the transactions, verify their eligibility and reach state consensus (at the consensus layer).
Due to the client software, all nodes work and interact only with the protocol. The client is an implementation of Ethereum that verifies data according to the protocol rules and keeps the network secure. Every validator in the Ethereum network must use these clients. Whether a user is staking from home or through some service, the clients need to use and interact with the Ethereum protocol. They form the first level of the staking stack. .
The merged Ethereum has two parts: the execution layer and the consensus layer , both running different clients and playing specific roles.
1) Execution Client (execution client)
Listens for new transactions broadcast in the network, executes them in the Ethereum Virtual Machine (EVM), and saves a database and the latest state of all current Ethereum data. Some of the main execution clients of Ethereum include: Besu, Erigon, Geth, Nethermind
2) Consensus Client (consensus client)
Implements a PoS consensus algorithm that enables the network to reach consensus based on verified data from executing clients. Some of the major consensus clients for Ethereum include: Lighthouse, Lodestar, Nimbus, Prysm, Teku
Client diversity
Client diversity is an important part of building a resilient network. By diversifying the clients used by nodes, it limits the impact of bugs or attacks to a single client and protects the network. If more than 66% of validators use a single client, and that client is attacked or encounters a serious error, it will pose a risk to the entire Ethereum network and could lead to blockchain outage and huge losses for node operators.
To reach finality on the network, 66.6% of validators are required. If a client has more than 66.6% of the market share and they fork onto their own chain, they can accomplish it. Once a fork occurs and is finalized, the validator will not be able to return to the original (real) chain and will not be punished; if 66.6% of the chain is slashed at the same time, the slashing penalty is 32 ETH.
So what's the solution? These situations can be avoided by limiting customer market share to 33% and educating the community on the importance of customer diversity and encouraging them to use less popular clients in the pursuit of maintaining the integrity and resiliency of the Ethereum network. . The current distribution of consensus and execution clients is as follows:
Flashbots / MEV
Maximum Extractable Value (MEV) refers to the maximum value that can be extracted from block production in excess of standard block rewards and gas fees by changing or excluding the order of transactions in a block. This concept was originally developed by Proof of Work (PoW). ) applied by miners.
How to withdraw MEV after Ethereum merges? The majority of MEV will be extracted by independent network participants called “searchers” who run algorithms to detect profitable MEV opportunities and use bots to submit these profitable transactions to the network. Validators receive a portion of this MEV because searchers pay higher gas fees (which go to validators) to ensure their transactions are included in a block.
How did the MEV opportunity arise?
MEV opportunities come primarily from market participants who use and interact with the entire DeFi ecosystem.
1) Liquidation
Lending protocols are very popular in the DeFi ecosystem, allowing users to deposit some collateral (i.e. ETH) and then borrow assets against that collateral. The value of this collateral (ETH) fluctuates with changes in the market value of ETH, and if the value of the collateral falls below a certain threshold, the protocol will allow anyone to liquidate the collateral (to repay the borrowed asset). If a position is liquidated, there is usually a liquidation fee shared with the liquidator - this is where the MEV opportunity comes in, with searchers competing to find liquidation trades and submit them first to earn the liquidation fee.
2) DEX arbitrage
Arbitrage trading is the act of buying a Token on one exchange (such as Uniswap) and then selling the same Token at a higher price on another exchange (such as Sushiswap). Due to the mechanism of the blockchain, users can complete this transaction in one go, and searchers will monitor the price differences of the DEX and look for opportunities to execute such transactions.
3) Sandwich trading (sandwich trading)
"Sandwich trading" is conducted behind DEX arbitrage opportunities. Assuming a large DEX arbitrage transaction is submitted to the mempool, this transaction is likely to push up/down the price of the purchased Token. While the searchers will watch the mempool and calculate the possible impact of the trade on the currency pair, if it is likely to push the price significantly higher/lower, they can execute the buy/sell order before the block trade is completed and then sell shortly after. /Buy it and profit from the transaction.
Where did Flashbots come from?
Additionally, some searchers:
Watch the mempool (where trades are located) for profitable trades;
Copy potentially profitable transactions and replace them with their own addresses;
Once the leader confirms that the transaction is indeed profitable, they increase the gas price of the transaction to get ahead of the original transaction and capture the MEV found by the original searcher.
In response, new services emerged. Flashbots is an independent project that extends the Go-ethereum client with a service that allows searchers to submit MEV transactions to miners without revealing the transactions to the public mempool, which solves the problem caused by the leader and has Help reduce high gas prices.
MEV-Boost is an open source middleware that validators can run to enter the highly competitive block construction market. A middleware that allows validators to access blocks from a marketplace of builders, MEV-boost will simply plug into a user's consensus client, allowing it to outsource specialized block construction without having to understand the technical details of how it works, as generated by these builders Blocks contain transaction order flow and block proposal validator fees.
Additionally, the Flashbots team found that separating the roles of proposers and block builders promotes greater competition, decentralization, and censorship resistance on Ethereum.
Distributed verification technology
Distributed Validator Technology (DVT) refers to an Ethereum validator running on multiple untrusted nodes to improve fault tolerance and security. It eliminates the single point of failure problem, if <33% of the participating nodes in the DVT cluster go offline, the remaining active nodes can still reach a consensus on what to sign and generate valid signatures for their staking responsibilities.
Core goals of DVT technology or distributed clients:
Provide delegators with an uncut, decentralized layer of security while earning staking rewards;
Simplify the process of setting up a validator for people with little or no technical knowledge or previous exposure to cryptocurrencies;
Establishing the foundation for the Ethereum staking community ensures that the spirit of decentralization continues to remain at the core of the network.
DVT creates a decentralized staking infrastructure that makes it possible to distribute Ethereum validator operations, improve security, increase inclusivity, and decentralize the network.
Risks involved with traditional validator clients
A validator client is software that acts on behalf of a validator, attesting to the state of the chain by holding and using its private key. A single validator client can hold many key pairs and control many validators.
Validators sign messages using their collateralized private key, which is only accessible by the validator client software, which is used to arrange the creation and signing of messages according to the responsibilities assigned to the validator. The main risks of this setup include:
The staking private key is located in a (centralized) location, and if someone accesses this private key without authorization, conflicting messages may be generated, which may result in the validator's ETH being slashed;
If the user does not operate their own validator, they need to hand over the pledged private key to the operator they are using, and this requires an assumption that the user must trust that the operator stores the pledged private key safely and reliably;
If the validator client software does not create messages in a timely manner to perform validator duties, validators will suffer activity leaks that will reduce their ETH balance, which can be caused by software bugs, Internet downtime, hardware issues, power outages, etc. .
However, some solutions have been developed to help solve these problems. SSV network is one of the research and development projects. It received funding from the Ethereum Foundation in 2021 and is dedicated to solving the shortcomings of traditional validator client settings.
SSV Network
SSV provides the infrastructure for splitting and distributing validator private keys to multiple "KeyShares" to run Ethereum validators across multiple untrusted nodes.
Currently, validators must run on a single node, which creates a single point of failure. If the node requires maintenance or goes offline due to issues, it may be curtailed. SSV splits the node's validator private key into multiple KeyShares and distributes them to each node. If a node goes offline due to one of the above reasons, the remaining nodes holding the KeyShares will respond and operate the validator to ensure no downtime. .
This creates a secure staking solution where users do not need to hand over validator private keys to operators, thus solving the current issues with staking private key handling.
Obol Labs
Obol Labs is a research and software development team building PoS infrastructure, focusing on Internet Bonds, DVT and multi-operator verification. The Obol network facilitates trust-minimized staking with multi-operator verification, which opens the door to low-trust access to Ethereum staking, which can be used as a core building block for various Web3 products.
Additionally, Obol built “Charon,” a middleware that enables any existing Ethereum validator client to run together as part of a distributed validator. It acts as a middleware between ordinary authentication clients and the beacon nodes they connect to, intercepting and proxying API traffic.
Solo-Staking
Personal staking is called "Solo-Staking", and users need to deposit at least 32 ETH to activate the validator software. As a validator, the user will be responsible for adding new blocks to the blockchain, processing transactions and storing data. In the process, the entire network is also protected and will receive new ETH rewards.
In our opinion, solo staking on Ethereum is the best staking method, providing full participation rewards, improving the decentralization of the network, and never requiring users to trust other parties with their funds.
In addition, users can also run physical dedicated hardware at home, which is called "Home-Staking". The hardware will be connected to the Internet 24x7 and have a stable power supply.
Home-Staking is widely regarded as the gold standard of Staking. Its main advantages are:
Get maximum rewards directly from the protocol to keep your validator up and online;
Completely eliminate trust and never give up control of the keys to your funds;
Can run on home hardware and personally add to the security and decentralization of the Ethereum network;
Best ways to promote decentralization;
Practice self-sovereignty: "Not your verifier, not your network."
Disadvantages :
Giving up the convenience of handing over operations to others;
Machines and networks must be physically prepared, maintained, and potentially troubleshooted.
Recommended hardware requirements for solo-staking at home:
Fast CPU with 4+ cores
16GB+ memory
1+TB fast SSD
25+ M/Bits bandwidth
However, the required hardware will vary slightly depending on the client chosen by the user. The biggest bottleneck people usually face is disk space, and even after syncing with the Ethereum blockchain, it's better to use an SSD with a lot of extra space. Check out the complete setup guide here.
Cloud-Staking
Cloud-Staking refers to using a cloud server to run nodes, which may be easier than building and maintaining your own home server. It offers high server uptime, a static public IP address, and may be more cost-effective.
The drawback of this approach is that it requires trusting a third party and is contributing to the centralization of the network through the use of cloud services such as AWS. However, there are some decentralized cloud solutions available, such as Flux or Ethernity Cloud.
Advantages :
Provider offers high server uptime and static public IP addresses;
Getting a dedicated or virtual server is more comfortable than building your own.
Disadvantages :
Trust a centralized third party - the server provider;
Due to the storage size required for a full node, renting a server can become very expensive.
Staking provider
Staking Providers are one of the larger categories into the Ethereum staking ecosystem, and they set up, maintain and run the hardware and day-to-day validator node operations. They are considered the backend operators that run all the computers and physical infrastructure that make the PoS blockchain function.
Staking Providers is also the general name for organizations that provide Staking services. There are mainly the following pledge providers:
infrastructure provider
Validators as a Service (VaaS), including organizations that provide institutional verification services
pledge pool
1. Infrastructure Provider
Staking pool infrastructure providers provide verification services directly to staking pools, they have dedicated hardware to maintain and run nodes set up through staking pools, and focus on large-scale operations and providing scalable solutions to meet the needs of Staking Pools.
At the same time, the difference between infrastructure providers and Solo Stakers and VaaS is that Solo Stakers run their own infrastructure and mainly focus on their own home settings; infrastructure providers provide large-scale solutions and can set up and maintain Staking Pools. and overseeing thousands of nodes; Vaas, on the other hand, refers to someone who uses a third-party service to set up validators, handle node operations, and perform ongoing maintenance. The service allows users to outsource the "hard work" or running and maintaining nodes for a fixed fee.
2. VaaS (Verification as a Service)
Verification as a Service, also known as Staking as a Service (SaaS), represents a category of staking services where users can deposit 32 ETH for a validator and generate keys. But in this case, the user delegates node operations to a third party. Additionally, rather than running hardware at home or using pre-configured nodes (solo staking), users use third-party providers for hardware or cloud setup, maintenance, and upgrades.
How is this different from cloud staking? The key difference is that in Cloud Staking, the user is the one who chooses the cloud service and is still doing the entire setup, monitoring and upgrading of the validator node. In VaaS, users do not need to manage, monitor or run any operations on the node. They only need to bring their 32 ETH to VaaS and pay a monthly fee for its services.
VaaS has three main advantages:
1) Still the user’s own validator
Users get their own set of signing keys and, of course, withdrawal keys, and can create a dashboard to monitor progress through the service they are using. It is semi-managed in nature as the keys are shared between the user and the VaaS.
2) easy and skillful
VaaS providers help users through the entire process from start to finish, and users can forget about hardware specifications, setup, maintenance and any upgrades that need to be done.
3) Limits risk
Users are typically not required to provide a withdrawal key, which prevents the service from withdrawing, transferring, or spending their funds.
An increasing number of VaaS providers can help users stake ETH, but each provider has different risks and benefits. Some providers on this list cater to institutional investors and may not be available to individuals, but they still offer validator services and therefore fall into this category.
3. Pledge pool service
Staking pools are a collaborative approach that allows many different users with small amounts of ETH to obtain the 32 ETH required to activate a set of validator keys. This makes it possible for smaller players to participate in staking on the network and leads to the establishment of more validating nodes.
It is worth noting that the Ethereum protocol itself does not support staking pool services, so a shared services solution was built separately to meet this need, which has three main advantages:
1) Low entry barriers
Most staking pools allow users to stake for as little as 0.01 ETH, which is easier to achieve than meeting the 32 ETH requirement for individual staking.
2) As simple as token exchange
Users do not need to worry about maintaining and setting up nodes, and the process of depositing into the pool is usually as simple as exchanging one token for another.
3) Liquidity Token
Staking pools typically provide users with tokens representing their staked ETH. The Token can be used like any other Token, allowing investors to earn staking rewards while being able to transfer, store, trade and earn income across decentralized finance protocols. Liquidity Tokens will be further discussed under the “Liquidity Staking Agreement” below.
Additionally, staking pool services typically operate using smart contracts, where fund deposits manage and track users’ shares and issue them tokens to represent the shares in the contract. Staking pools can be further divided into three categories, separating them based on whether they allow an open, limited, or specially curated set of validators.
1) Participate publicly as a validator
Open participation for validators means that everyone can participate in the consensus process and become a node operator in the network, whether you are an institution or an individual. It does not rely on a voting process to decide who can or cannot be a validator on the network, users are treated like any other node operator.
This democratized staking system does not favor any party and is the epitome of permissionless staking, and an example of one using this protocol is RocketPool.
2) Limited curated validator set
A limited set of validators refers to the approach taken by some protocols, where professional validators are carefully selected to maximize returns and limit slashing penalties. The protocol has a committee that selects top-notch validators to minimize staking risk, meaning a group of decision-makers decide who can become a validator, making it a permissioned protocol.
But possible problems with this approach are:
Once an operator enters the muster, there is little incentive to improve;
There are not many professional node operators running their own infrastructure, which could cause the protocol to exhaust the candidate pool.
Furthermore, if this selection process continues in the long term, it could form a full-blown monopoly and lead to dystopian outcomes for Ethereum. While it's unlikely, concentrating decision-making power in the hands of a small number of token holders is not the best outcome for Ethereum, and it doesn't end well in the long run for the network that chooses this path, among others. One example is Lido Finance.
3) Staking pool with an exclusive curated set of validators
Use a group of exclusive operator Staking pools such as: Ankr Staking, Alluvial Finance, Stakewise, Stafi.
Liquidity Staking Solutions
A unique proposition of Staking Pools is that they issue liquidity tokens that represent staked ETH and allow users to trade or use that token in DeFi applications, as well as in return for new trading/investment opportunities. The concept of issuing liquidity tokens for pledged assets is called liquid staking, and this is what most staking pools offer their users.
Traditionally, staking on PoS-based projects involves a lock-up period during which a user’s assets cannot be traded or withdrawn. Taking Ethereum as an example, until the Shanghai upgrade is completed, funds cannot be withdrawn from validators on the beacon chain, which limits the ability of users to actually redeem their own liquidity tokens to obtain ETH rewards locked in the consensus layer.
This is why liquidity staking is so popular with investors, as it allows them to withdraw their ETH without actually removing the ETH from the staking contract.
The main benefits of liquid staking are:
Makes the staking process simple, with no hardware to manage or set up;
There is no limit on deposit size, which allows smaller players to participate;
Liquidity pools allow users to participate in other DeFi protocols.
Some common examples:
1) Decentralized
Lido Finance (stETH)、 RocketPool (rETH)、 Ankr Staking (aETHc)、 Alluvial Finance、 Stakewise (SETH2)、 Stafi (rETH)；
2) Centralized
Binance (BETH)、Kraken (ETH2.S)、 Coinbase、cbETH。
custodian
A custodian is an institution that actually owns a user's financial assets. It is usually a brokerage firm, commercial bank, or other type of institution that holds the user's funds and investments for convenience and security. Additionally, custodians play a key role in institutional adoption of ETH by enabling investors to store their digital assets with regulated third-party custody providers.
Data providers and tools
1. Data Provider
Data vendors are organizations or businesses that provide data for use by third parties. Some data vendors provide access to datasets for free, others sell data for a fee, and some data vendors offer a mix of free and paid data services.
The vast majority of Ethereum data providers offer their services for free and are committed to providing insights to the community through unbiased and real-time Staking market data. Furthermore, data providers can be divided into:
1) Investor data
Staking Rewards: The central information hub and data aggregator for the crypto staking industry
Dune: Community-based analysis of the blockchain ecosystem
Token Terminal: Aggregating revenue data analysis for blockchain and decentralized applications
2) Verifier data
Rating.Network: Validator Rating
Nodewatch.io: Ethereum node analysis
Ethernodes.org: Ethereum node browser
Clientdiversity.org: Client diversity analysis
Migalabs: Ethereum Analysis
Eth2-fork-mon : Fork monitor for a set of configurable beacon nodes
Ethstats: Web UI for tracking execution layer node status
3) Others
Beaconcha.in: Beacon chain block explorer
Beaconscan: The official Etherscan beacon chain browser
Blockscout: Execution layer block exploration
2. Tools
The Ethereum community has developed tools to make the staking process more secure, efficient, and scalable. Most of these tools are open source and can be found on Github:
Consensus-monitor: Web UI that checks a user's Ethereum consensus layer node via its beacon API
dshackle: Fault-tolerant load balancer for blockchain APIs, including Ethereum RPCfauceth, EIP1559 compliant network faucet using Hcaptcha
ganache : emulator for execution layer development and testing purposes
genesis-generator: A tool to generate and expose genesis files for execution and consensus layer clients
rpc-proxy : Proxy, rate limiting and method filtering for Web3 JSONRPC
testnet-faucet: A web faucet that can be used to distribute testnet ETH to users
testnet-homepage: Simple website that can be used to display useful information about the user's testnet
ethereum-metrics-exporter: prometheus exporter for Ethereum execution and consensus clients
checkpointz: Beacon chain checkpoint synchronization provider
Wallets and browsers
Wallets and browsers are the connection points between users, the protocol, and the Ethereum chain. Wallets have different features to suit the needs of users. These listed provide a key feature of Ethereum Staking as a wallet.
Escrow pledge
Custody staking means that users pledge cryptocurrency through a centralized entity (i.e. Binance, Kraken, Coinbase), but it means that the exchange is the custodian of the user’s assets, and the user entrusts the management of the private key to the exchange and is subject to its Terms and Conditions.
However, this option is not recommended as the first choice for users because it requires a large trust assumption and is not conducive to the decentralization of the network. If users don’t like using self-hosted wallets and prefer to use centralized exchanges, that’s a different matter. However, users are always encouraged to support decentralization and learn how to use other options.
If you are new to the Ethereum Staking ecosystem and still feel confused or overwhelmed after reading the above, then the tree diagram below can help you understand them more clearly.
Summarize
The Ethereum Staking community is the core of the network and is committed to supporting Ethereum's vision of building a digital future on a global scale. As more users begin staking their ETH and existing stakeholders continue to develop new staking products, it is expected that Ethereum will become the dominant staking asset in the coming years.
Original link:
https://newsletter.stakingrewards.com/p/mapping-the-ethereum-staking-ecosystem
**This article only represents the views of the original author and does not constitute any investment opinions or recommendations.
-END-
[The purpose of publishing articles is to disseminate more valuable information. The copyright of the article belongs to the original author. Its content and opinions do not represent the position of Unitimes. The pictures appearing on this WeChat platform are all collected from the Internet, and the copyright belongs to the copyright owner. If the copyright owner believes that his work is not suitable for everyone to browse or should not be used for free, please add WeChat uniforms2018 to contact us, and this platform will make corrections immediately. 】
Just click " Like " when you come.
