Hi, fellow home staker here.
Thanks for the proposal. I appreciate the thoughtful analysis of the cost structures of home staking and I agree with all of them. However, I do not understand why stake ratio targeting solves them. It seems to me that no matter how you slice it, implementing targeting means that staking yield, both nominal and real, will go down compared to today’s levels.
This means the first stakers to become priced out of staking will be the home stakers, for the reasons you’ve already enumerated: they don’t have the economies of scale that large staking pool operators do, they don’t benefit from the value of having their stake liquid, they have higher reward variability, and so on.
I would add to this list: Home stakers will likely not be able to earn as high a yield as SSPs will due to restaking opportunities that require serious hardware.
There is also another dynamic that this post doesn't mention: LST liquidity wars *between each other* in a stake ratio targeting environment.
So far, most new staking providers have been able to gain market share because they can attract new ETH to be staked. In a world of stake ratio targeting, especially one where the target is close to 1/4 which is already what the current ratio is, the LST competition becomes zero-sum. This accelerates the winner-takes-most dynamic the post already mentions, and it cements the position of existing LST operators as it makes entering the LST market increasingly difficult. You might argue that we are already effectively heading there anyway but that it’s just a matter of it happening when we reach 100% of stake vs whatever the targeted stake ratio is, but the argument remains that the world where the LST market is allowed to grow in a non-zero-sum way for a few more years vs the world where the only new ETH coming into LSTs has to come from existing stake are two different worlds. It may well be that giving more breathing room to the LST market brings a sufficient number of new entrants to ensure the a sufficient plurality of SSPs and delay winner-takes-most effects. But of course, all of this is speculation.
At the end of the day, home staking is already not an economically rational choice. LSTs are already more competitive, and the difference seems like it will only grow over time as per the above arguments. This is why I’ve proposed that we should make staking operators legible to the protocol so that we can actually reverse this effect.
See this proposal to do just that.
It currently takes nearly no time; only about 37% of the beacon chain’s exit capacity was used in the last 30 days. As the OP notes, staking has been mostly up only. However, as a home staker, this is not really what makes my staked ETH illiquid. What actually makes it illiquid in practice is:
- Exiting the validator is an extremely manual process which I have not researched and, having a full-time job, it would likely be a weekend project to figure out how to do this safely. It requires re-learning a bunch of things I have likely forgotten around how my validator operates (something which I set up once and only need to worry about occasionally), as well as needing to research how to set up another validator later if I want to stake it again.
- I cannot use my home-staked ETH for anything other than ETH staking. Contrast this with LSTs, which can be used in DeFi to get a loan against them, or can be used to participate in vampire attacks in the SSP wars, etc. as noted above by @theSamPadilla. Essentially, LSTs have already attained a significant amount of money-ness. In the future, my home-staked ETH will probably also be forgoing more yield opportunities from restaked AVSs which be run on a residential connection. That’s OK with me; my goal with home staking is to secure Ethereum and ensures it keeps running first and foremost, and I would be home-staking even with negative yields. But I think the pool of home stakers for which this is sufficient motivation is vanishingly small as a fraction of staked ETH.