Staking Derivatives Will Make ETH2 a Permissioned Network

With such a large number of validators in LIDO, there is little incentive to join any new pools - they will be taking a 10% rake on rewards and will also have much greater chances for multi-block MEV. These facts coupled with the fact that there is a new economy being formed around stETH that other validator pools will not be able to engage in leaves me feeling there to be no real realistic path for other staking pools on ETH to form. This last bit is something which a number of groups, including paradigm, have recognized.

I see as this creating a bottleneck where LIDO is the de-facto provisioner of staked liquidity equivalent within the network. And with the protocol being heavily controlled by a few LDO holders, I see this as effectively creating a permissions layer around the de-facto validator pool for eth2.

I advocate for removing staking derivatives - particularly stETH from LIDO to inhibit this lockout of other validator pools. If you have any arguments as to why this would not happen, I would love to hear them - I have only heard ad hominems and comparisons to Bitcoin, thus far.

h/t to Alex B for really bringing this to light

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i think you’re gonna need staking derivatives to solve a few issues. to start: it’s hard to see how one can hedge transaction costs without some such constructions, at least not without quite-far-out-there changes to the staking model.

this is entirely concerned with risk management and ntg to do with how open the ecosystem becomes. you may well be right on that front.

I don’t see why they are necessary - less so how they are so necessary as to be worth sacrificing Ethereum’s degree of decentralization. Can you please enumerate some examples?

Staking rewards are a natural hedge for execution fees.

I am not taking a position on the tradeoff vs decentralization. It may well be the case that you can only have one of decentralization and stable (or at least reliably hedgeable) fees.