Content pfp
Content
@
0 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
1. Minimum viable issuance is an important principle in staking economics. This thread will further advance the concept by analyzing how issuance level affects Ethereum’s equilibrium staking conditions, guiding us to a utility-maximizing reward curve. https://notes.ethereum.org/@anderselowsson/MinimumViableIssuance
1 reply
10 recasts
26 reactions
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
2. This thread is 116 tweets long and has 32 figures, so I am here linking to it as a post as well. There is a second part forthcoming and I will also provide an ethresearch post covering the topic shortly for those more comfortable with that format. https://notes.ethereum.org/@anderselowsson/HyUIqjo_6
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
3. Before I start I would like to thank @barnabe, @fradamt, @vitalik.eth, @soispoke and @justindrake for fruitful discussions and feedback for this thread, as well as @ansgar.eth, @davidecrapis, @caspar and @julianma for fruitful discussions. I also wish to thank Flashbots for providing the data used for this analysis.
1 reply
0 recast
3 reactions
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
4. The demand curve shifted upwards after The Merge when stakers started to receive MEV and priority fees. Reservation yields fell after Shapella due to improved liquidity, and the supply curve shifted downwards. Both changes pushed up the equilibrium quantity of stake.
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
5. Because of this, Ethereum has arguably entered a phase of overpaying for security. To what extent can we stop overpaying? Can we reduce issuance while still retaining consensus stability, proper incentives, and acceptable conditions for solo staking?
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
6. Can we adopt a reward curve that lets the issuance yield go negative past some specific staking deposit size D, or target some specific desirable D by simply adapting the yield to enforce it? Otherwise, should a more moderate approach be adopted?
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
7. We will take a closer look at these questions and review features of staking economics that affect consensus incentives and reward variability—including how they vary across deposit size. This will guide our approach to minimum viable issuance (MVI).
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
RELATIONSHIP BETWEEN THE EQUILIBRIUM STAKING AND F 8. The base reward factor F is the big knob for adjusting the total issuance level under the current reward curve. It affects all consensus rewards and penalties and provides an issuance yield under idealized performance of y_i=cF/D^0.5. The constant c is around 2.6.
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
9. The total yield provided by the protocol to stakers implies its demand for stake and it is y=y_i+y_v, where y_v is the yield from realized extractable value (REV). Denote yearly REV as V (currently around 300k ETH). We then have y_v=V/D.
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
10. Note that y is the endogenous yield derived exclusively from staked participation in the consensus process. Yield from DeFi/restaking that is exogenous to staking is not modeled here; it can under competitive equilibrium also be derived by non-stakers. https://x.com/weboftrees/status/1710720809797407063
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
11. The colormap and y-axis both capture y, with the colormap restricted to F=0-75. Currently, F=64. At equilibrium, the demand curve will intersect the supply curve that captures how prospective ETH holders’ inclination to stake varies with yield.
1 reply
0 recast
0 reaction
Anders Elowsson pfp
Anders Elowsson
@anderselowsson
12. The shape of the supply curve is unknown. The two examples in blue have a yield elasticity of supply of 2, with the lower also used in the last thread. Plots will be provided covering a broader range so that different assumptions can be mapped to various outcomes. https://x.com/weboftrees/status/1710706011185545671
1 reply
0 recast
0 reaction