Surprisingly honest: Ethereum staking as a service - a rational choice between security and income

The development of Ethereum Liquidity Staking Derivatives (LSD) is in full swing. For ordinary cryptocurrency players, participating in LSD is indeed enough, but they do not have a deep understanding of the underlying logic and security implementation of participating in staking. A large number of users choose LSD poses the risk of centralization in Ethereum, which is actually a big threat to the entire Ethereum ecosystem.

Decentralization is not a matter for the team, but a rational choice made by each user based on their own interests. And I want to say that Staking as a service is an Ethereum staking method that balances security and income in your own interests.

Staking as a service (hereinafter referred to as SAAS) is a staking method suitable for users with medium or above funds to participate. However, there is very little information in both Chinese and English on the entire network, and a large number of users who could have the conditions to participate in SAAS are lost. This Compared with LSD, the biggest features of this method are higher safety, less trust in third parties, low cost and possibly higher profits. Cryptocurrency players holding more than 32 ETH should seriously consider this option.

Speaking from my own experience, when studying the Ethereum staking track, I kept asking myself what I think is the most important thing. After questioning my heart a thousand times, I still believe that as an investment decision that spans more than a few years and may even serve as a lifelong passive income, the safety of assets is undoubtedly the first priority. From this perspective, LSD cannot give me a sufficient sense of security.

According to @0xtodd’s classic article “Starting from Staking, 4 ways to control the Ethereum network”

There are only two staking methods that meet this need.

1. solo home staking
2. staking as a service

For most ordinary people, they do not have enough technology or energy to run nodes by themselves. Therefore, although solo is the most decentralized and has relatively no intermediate costs and commissions, it is too difficult and will not be discussed here.

This article focuses on the staking method of staking as a service. In plain language, SAAS means that you provide funds - 32 ethers, the node operator provides technology (software and hardware), and the two of you cooperate to participate in the pledge. SAAS is not a familiar concept to most Ethereum users, even senior defi degens, because almost all Ethereum pledged liquidity tokens (LST) in defi are two other staking methods: pooled staking and centralized exchanges. The pledged derivatives include the well-known stETH of lido, rETH of rocketpool, sfrxETH of FRAX, etc. They occupy a large amount of trading volume and TVL in various DEXs. The latter is represented by cbETH of coinbase and BETH of Binance. represent.

Although the latter two staking methods have different degrees of decentralization, one thing is the same, that is, the pledger cannot personally control the two keys for Ethereum POS verification and withdrawal. Therefore, you have to choose Trust that third parties will not do evil. As for whether your faith will collapse, you will only know it on the day something happens. After all, I have been in the currency circle for 10 years, and I have seen all kinds of bloody things. If we look at this cycle in the next few decades, there will definitely be bigger black swan events happening, so there is nothing more important than controlling your own destiny.

Lucky investment decisions often result in complete failure, and it only takes one failure to ruin your life.

If you agree with the above point of view, then you might as well follow me to learn more about the SAAS staking method. Give yourself real control over your assets.

The Ethereum official website evaluates the SAAS staking method from the following aspects:

1. Open source

The key code is 100% open source and available to the public, and can be freely forked and used.

1. Audit

Critical code has been formally audited, and the audit results have been released and made available to the public.

1. Bug Bounty

Public bug bounties are placed on critical code to reward users for safely reporting or fixing vulnerabilities.

1. Practical test

The service is open to the public and available for use during the specified period of time. It is better to run for more than one year.

1. No permission

Users do not need any special permission, register an account or conduct KYC verification to participate in the service.

1. Diversified customer service terminals

Service providers should not run more than 50% of total validators with a majority validator client. It is better for this indicator to be less than 50%.

1. Self-hosted

Users keep all validator credentials, including signing and withdrawal keys.

https://ethereum.org/en/staking/saas/#what-to-consider

On the other hand, we can also judge from the data in the Ethereum pledge board rated.network which node operator is more stable and secure.

https://www.rated.network/?network=mainnet&view=nodeOperator&timeWindow=7d&page=1 。

From the perspective of node operators on the website, we can see that the market share of the relatively mainstream large-scale node operators is not too high. Currently, no one can exceed 3%. Compared with lido in pooled staking, The dominant one is relatively decentralized.

Here I list the implementation of several larger node operators under six indicators.

However, these six dimensions are too general and do not have much guiding significance for user selection. For example, it is difficult to determine whether a protocol is completely open source. He may only put some components of the protocol on github. It is difficult to know whether all the core code is open source.

In addition, each node operator handles the two keys, especially the verification key that the agreement party needs to keep, in a different way. This actually tests their understanding and implementation ability of security. lido’s data in an article can show this difference from one side (@lido/BkxRxAr-o%23External-Signers"">https://hackmd.io/@lido/BkxRxAr-o#External-Signers )

Dirk and Web3 Signer are two different ways to protect validator keys. They are all designed to provide secure key management to protect validators’ private keys from unauthorized access and malicious attacks. Unfortunately, most node operators do not use external signatures, the most basic management method to protect validator keys.

So I think a more reasonable evaluation of node operators should be based on the following aspects:

1/Safety

For the SAAS pledge method, the custody of the withdrawal key is completely your own business. As long as you ensure that your own withdrawal address private key is not leaked, no one can take away your pledged Ethereum. This is completely different from LSD. Node operators do not participate at all, so it can be called self-custody.

The remaining key, the verification key, is where node operators can exert their own security concepts and execution methods.

In this regard, an article by the node operator Attestant has a very detailed discussion on how to protect the technical means of verification keys. The original article:https://www.attestant .io/posts/protecting-validator-keys .

To put it simply, the verification key is in a dilemma. Although the verification key itself cannot access funds, if it is obtained by an attacker, indirect attacks such as blackmail may occur, or direct destructive attacks may cause users to suffer penalties. Loss of funds, so security is very important.

At the same time, the verification key needs to be accessible at all times: the validator needs to sign multiple messages every epoch (~6.5 minutes). Therefore, the access requirements for verifying keys are also very high.

In general, we can have security or accessibility, but not both. This is the dilemma that node operators need to solve when verifying keys.

In addition, the entire security system is also highly asymmetric. An attacker only needs to sign an arbitrary message to achieve their goal of compromise, while the user’s goal is ongoing. In other words, the attacker only has to win once, but the user has to win every time.

Therefore, a better way to protect the verifier key is to add layers of security guarantees on top of the original local plaintext storage key, thereby achieving a balance between costs and benefits. The technologies include remote passphrase, remote signer, threshold signing, and distributed key generation. The layer-by-layer security technology stacking is amazing to me. Interested friends can learn more about the above-mentioned article.

The final effect is to deny single-point server failure and perform threshold signing through DKG technology. If one of the servers is compromised, there will be no permanent vulnerability. The process of re-keying can lead to the attacker holding the Stolen keys cannot be used.

Another article that I think everyone participating in SAAS should know:https://www.stakingrewards.com/journal/choosing-the-best-using- metrics-and-data-to-choose-the-right-ethereum-validator/, mentioned that the node operators he knows that use threshold remote signature technology include the following: a>

1. Attesting
2. Cryptomanufaktur
3. A certain one
4. P2P.org
5. Stakely
6. Staking facilities

Several of the node operators can be found in rated.network. Their performance is indeed very good, their effectiveness ratings (EFFECTIVENESS RATING) are relatively high, and there has never been a slash in history.

2/ income

Once the security issue is solved, the income issue is also solved to a large extent. Because when the node operator can ensure the security of the verification key and has a mechanism to always ensure that the correct message is issued in a timely and effective manner, your income will naturally be guaranteed. In addition to this, I think there are three key indicators to help you choose the node operator with the best revenue.

1. Effectiveness Rating

Usually the main indicator for users to choose a node operator is APR. You would query each operator’s APR earnings over time, however, due to Ethereum’s complex reward structure (monthly or even quarterly APR is highly dependent on many random variables, such as the number of blocks created or MEV withdrawn, and It does not reflect true operator performance) and it is better to compare staking providers by validator effectiveness ratings rather than APR.

I explained this indicator in detail in my previous article “A Complete Collection of Technical Indicators for Ethereum Staking - An article to teach you how to understand the Ethereum Staking Board rated.network”. https://mirror.xyz/darkforest.eth/lYp2RDybbioSns0TyIXe5y9w9AlbDraRkTX3q7diygc

A validator’s effectiveness rating is a good predictor of APR in the long term because it measures how well the validator fulfills its responsibilities. If a validator does not miss attesting to a block, it is 100% valid and receives 100% of all possible rewards.

For companies with relatively high market shares, the difference between the highest and lowest effectiveness ratings of extended timelines can be one percentage point. But it seems that under the interference of random income, the contribution to APR is not significant. However, you should also choose a node operator with a higher effectiveness rating, you can’t go wrong with this.

In comparison, the effectiveness ratings of LSD projects during the same time period were generally less than ideal.

Another interesting point is that stakefish, allnodes, P2P.ORG, kiln, etc., these large node operators are also node operators participating in lido or rocketpool, so if you don’t care much about the flow of pledged Ethereum security and defi composability, or to prevent you from losing money and losing the chips in your hands. You can choose the same node operator as the LSD protocol on the premise that you have the private key, so you don’t need to interact with The LSD protocol provides a 5% or even 10% revenue share, thereby increasing your revenue benchmark and lengthening the timeline, which will make a considerable difference in revenue.

In summary, using reliable node operators can not only reduce risks, but also increase profits.

2.MEV withdraws income

The number of MEV relays connected to a node operator will affect how much MEV revenue you can receive. Currently, there are ten active MEV relays. If a validator connects to each relay, it receives more bids and can select the most valuable bid, thereby receiving a higher MEV reward. In rated, we can see that the graphs of the largest node operators in the BLOCK SPACE DISTRIBUTION column are almost the same. Almost all blocks are relayed through MEV-boost, which can maximize the value extraction of MEV and improve APR earnings.

From the rated relay landscape interface, we can see the importance of MEV relay to us in increasing our revenue.

In the past 30 days, the rewards of the consensus layer are not important without using MEV-BOOST, there is almost no difference, but the rewards of the execution layer, using MEV-BOOST can increase the rewards by nearly 4 times. This difference is not significant despite the sluggish gas fee market in the past month. In April, the use of MEV-BOOST even increased the execution layer reward by more than 10 times. This is the role of MEV in increasing APR staking income. .

Of course, the higher the MEV block proportion, the better, because when the MEV relay takes too long to propose a block, there is a high risk of missing the block. Therefore, node operators do not achieve a 100% success rate when creating blocks.

By the way, let’s take a look at the ten MEV RELAY track projects that are currently active. Some of them are issuing coins, but most of them are not. But… this track project doesn’t seem to be very profitable, and it’s still very expensive.

1. Slashing

Ordinary small-scale slashing does not have a very serious impact or loss on the staking individuals and the entire Ethereum ecosystem. If there are only 1, 100 or even 1000 slashed validators within 36 days, the penalty will be equal to 0 ETH. However, if the number of slashed validators increases to approximately 1.1% of all validators (currently 6.4k), this penalty becomes 1 ETH and each additional 1.1% of validators are slashed 1 ETH. So if 1/3 of the network is slashed, the penalty will be offset by the entire stake (32 ETH). This mechanism is to prevent attacks on the network and should never be triggered accidentally.

We can compare the data on the slashing events of several leading node operators of SAAS and several leading projects of LSD. Most of SAAS have been running for a long time, and the running time of coinbase and rocketpool in LSD is not too long. However, in terms of penalty data, SAAS is obviously better overall except for stake.us.

Comparison of LSD and SAAS confiscation data

Potential large-scale slashing is definitely a disaster-level event for Ethereum stakers. This is why the Ethereum community is very pursuing the diversification of clients. Currently, there are basically two dominant clients in the consensus layer, Prysm and Lighthouse. Accounting for 74%, the execution layer client is even more dominant. It can be said that serious bugs in any one of them may cause serious forfeitures of Ethereum POS. Therefore, for individual stakers, it is very important to choose a node operator with client diversity, especially a node operator with minority clients that may be life-saving at a critical moment.

3/cost

If Ethereum staking is a long-term investment for you, choosing a staking method with a lower fee is very important to increase your income over a long period of time. This point is similar to your choice of investment in actively managed funds and passive index funds. I believe this is understandable to mature investors.

Since most of the node operators of SAAS are for institutional customers or directly connected to LSD projects, I have only found a few node operators that individuals can participate in. You can negotiate rates with some node operators, such as P2P.ORG provides a fee of only 5% for large customers with more than 10 validators. If you compare coinbase’s cbETH 25% fee, it can be said to be quite attractive.

Stakefish’s charging structure is also very different. No one wants the revenue from the consensus layer. As long as you get 25% of the revenue from the execution layer. This charging method is quite smart in my opinion, because as the number of pledgers increases, the revenue from the consensus layer will definitely continue to decline. , and once the bull market starts, the increase in priority fees and MEV income in gas fees will greatly increase the execution layer rewards, and stakefish can therefore obtain greater benefits.

Kiln can pledge Ethereum through Ledger Live. Because I don’t currently use Ledger, I don’t know the specific fees and staking methods.

On the whole, Allnodes has the cheapest cost. The advanced plan is calculated based on the current Ethereum price of 1900$, and the annual cost is only 4% of the income. One thing I like very much is that the cost is calculated in US dollars, so if Ethereum in the future If the price of ether increases significantly, the fees of other operators’ model of taking a proportion of Ether will become very high.

4/operability

When you participate in staking with most staking service providers, you need to generate the validator mnemonic by yourself. Basically, they will provide two methods, one is the official tool of Ethereum, and the other is their own tool. The mnemonic must be properly Save and generate two .json files, keystore and deposit. Note that you need to keep the mnemonic carefully. If you lose it, you will not be able to initiate a withdrawal request, and your Ethereum will be permanently pledged.

From a certain perspective, this does not seem to be a problem for lifelong pledgers. Anyway, your interest is automatically transferred to the withdrawal address every few days. As long as you have the wallet key of the withdrawal address, you will have no worries. money spent. But, after all, there is one less choice.

The above operation will put some psychological pressure on new staking people. Although it is not complicated, it is recommended to practice it more and then perform it in practice. You can also do it on the Goerli test network. Some staking service providers have also thoughtfully prepared simpler staking solutions, such as stakefish’s NFT staking method. P2P.ORG can also pledge with almost one click without requiring too many operations. However, operational convenience comes at a certain price. The withdrawal address for stakefish’s NFT pledge is not your own address, but a whitelist contract address. P2P.ORG generates and manages validator keys for you, and you need to make your own choice on balancing security and ease of operation.

5/Comprehensive evaluation

Staking Rewards ( https://www.stakingrewards.com/verified-staking-provider ) is a platform that provides cryptocurrency staking related information. and tool websites. From this website you can learn about each staking operator’s staking rewards, expected yields, and guides and resources for participating in staking. He also compared and ranked different pledge projects, and made a rating system by himself, dividing certified node operators into three levels: AAA, AA, and A. I listed some AAA-level node operators, including Interested friends can continue to learn more.

Summarize

This is an investment research I wrote for myself. Although the SAAS field is Ethereum POS pledged like LSD, its popularity can be said to be as hot as ice and fire. Few people are interested in it. There is almost zero Chinese content that goes into this field. The English content is basically a doc written by the project party itself. After all, 32 ethers is not a low threshold for creating a node, but I believe there will still be people who have this need. At least if the partners involved in LSD can clearly understand the operating indicators, safety management methods, etc. of the node operators at the bottom of the LSD project, it will be of great help to invest in the LSD project.

In my opinion, every staker participating in Ethereum needs to start from their own actual situation, make a choice that is consistent with their own values, and know what is most important to them. Again, decentralization is not a matter of the team, but a rational choice made by each user based on their own interests and independent thinking.

“Sun Tzu’s Art of War” says, “Warriors use the right combination to win by surprise.”

In my opinion, SOLO and SAAS are undoubtedly the “rights” that medium-sized Ethereum stakers must keep. Only by keeping the safety of funds can you have the capital to “surprise” and let your hands and feet go to the LSD track. This can be said to be the way to invest - being upright and surprising.

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