[PHASE 1] HIP XX - PoH's own PoS validator

DAO
1

SIMPLE SUMMARY

Given the fact that the Merge is coming, the proposal is to use 32 Eth from the DAO’s treasury or from the Gitcoin grants and set up a Proof of Stake validator where the money earned goes to the DAO’s treasury.

MOTIVATION

To put our money (or best to say: our power) earning money for our treasury, in a cause that resonates with our interests and our values.

Furthermore, it would be a sign of good faith and trust to the Ethereum Foundation and all the Ethereum community. Its a great opportunity to go big in the ecosystem and show who we are and what we are building.

RESUMEN

Dado que el Merge se está acercando, la propuesta es destinar 32 Eth del tesoro de la DAO o de las Gitcoin grants para armar un validador Proof of Stake en el que el dinero que se reciba vaya a las arcas de la DAO.

OBJETIVOS
Poner nuestro dinero (o, mejor dicho, nuestro poder) a ganar dinero para nuestra tesorería, en una causa que resuena con nuestros intereses y nuestros valores.

Además, enviamos un mensaje de apoyo a la Fundación Ethereum y a toda la comunidad. Es una gran oportunidad de ir a lo grande en el ecosistema, mostrando quiénes somos y lo que estamos construyendo.

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Yeah I generally agree with this, more than putting the PoH treasury in the UBI vaults. Better yield.

How would you implement something like this, exactly? Who would be trusted to run the PoS? Wouldn’t it be easier to acquire stETH or something similar, or just lend the ETH to a safe PoS project?

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I,'m asking any users who are more familiar with the process to discuss the more nerdy questions.

Who would run the node? Lets hear suggestions.

Why run a node? To make a statement, to get notoriety in the ecosystem. To back the ecosystem and expect to keep building and have the ecosystem’s back.

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I think this is a great idea but it should definitely be implemented in a non-custodial way where the dao has direct access to the benefits.

The thing that we must consider though, is that once you stake the 32 ETH, you won’t be able to remove that stake immediately… this means: we wouldn’t have access to our funds in case we need them until the process (6 months from now at least) that allows to unstake gets enabled. And even then, still your right to unstake will be in a queue that might take several months.

So, even the yield is promising the opportunity cost of this is quite big.

The liquid staking approach of LIDO is definitely something we could consider, but there was a depeg crisis recently where each ETH traded at 0.95 stETH… I’m not very famliar for the reasons behind it, but staking on Lido does not come without risks.

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I agree with the idea of getting some extra yield of actual treasury, and that it must be done with a low risk instrument of investment.

I was thinking on different options to consider and for doing so, the main variables might be :

  • Security
  • Decentralization
  • Risk
  • Yield
  • TVL (even though high TVL is not a guarantee of nothing after we saw Terra’s case)

Some options (listed in order of the risk to which the DAO would be most comfortable to adopt) :

A) Solo -Staking

B) LSD Index

C) Run a Node with Rocket Pool

D) Run a Node with Abyss

Individual Review:

A) SOLO STAKING

Pros:

  • Full rewards as validator
  • More “reputation” for the DAO since it will show it’s full support to Eth PoS and decentralization.
  • No dependence on a third party

Cons:

  • Need a dedicated computer connected to the internet ~24/7.
  • You would probably need to delegate the task to run the node to an individual person, who must:
    a) Have some technical know-how.
    b) Have Skin in the game:
    This factor is the most important and also difficult to fulfill in my opinion.
    You can think of the possibility of providing this person a share of the rewards. If you do so, not only you will probably end up getting some similar yield than with pooled staking, but also you won’t cover the weak point of the penalties and slashing: These losses wouldn’t be equivalent (much bigger proportionally) to the skin in the game of the person in charge might for getting a fee on the rewards.
    In the other hand, you can commit this person to have a significant deposit as insurance of, for example, 10 ETH. The problem with this is that this person could run its own node with similar amount of ETH (16 at Rocket Pool actually but is planned to reduce it to 8 or even 4) and in terms of profitability, freedom and responsibility, this person will find more convenient to make use those ETH for himself (even though, you can accept stETH or other LSD as “insurance” so he can keep on maximizing yield, but it implies also more layering risk)

B) LSD INDEX

We could create a Diversified Staked ETH index with main liquid staking derivatives such as rETH, stETH, sETH2.

We can do it in a “manual” way: Exchange ETH for this LSD weights according to certain parameters (you can do it via TVL, or via independent nodes, for example) and re-balance this portfolio every 1 month.

Also, you can just buy an Index token like the one of IndexCoop which include the most prominent liquid staking derivatives - rETH, stETH, sETH2 - with weightings that favor # of node operators and distribution of stake across node operators ( it’s planned to be launched in October) :

  • Stakewise sETH2 - 26.67%
  • Rocket Pool rETH - 44.11%
  • Lido stETH - 29.62%

This second option makes the process easier but implies being exposed not only to the risks of LSD’s but also to the risks of the company who issues the “index”.

C) RUN A MINI-NODE WITH ROCKET POOL

As RocketPool isn’t as “famous” as Lido, it’s logical to have less confidence on the protocol. But it’s important to know that RocketPool has been created even before than LIDO and where the first to think on a LSD (their history).

It’s impossible to know whether it will be a good choice or not, but to get a full understanding of Rocket Pool you check my notes here and this message on PoH Telegram group.

The idea will be using 16 ETH + 15% worth of that ETH in RPL to create a Mini-pool and run a node on RocketPool via AllNodes.

This will enable us to run a node earning 100% validators fees + 15% extra validators fees from ETH depositors + RPL rewards (you can check my Math for long term valuation)

Actually, there is a queue of about 140 persons approx for your node to start “working”.

Based on my research, I think it’s not such a high risk investment as many might think, that’s why I will appreciate checking the sources I mentioned, so all can get their own conclusion. (I can also do an oral presentation for then exchanging ideas)

D) RUN A NODE WITH ABYSS

If we check on Ethereum org web, we can see that there is an option between “Solo-staking” and “pooled staking” (LSD providers) : Staking As A Service options where we can find options such as Abyss, where you can now provide liquidity with your DeFi tokens, lock LP tokens and enjoy free unlimited Ethereum 2.0 hosting service for your validator nodes.
I don’t make research on this possibility because it is run also via All nodes (which I think it’s not bad, but it makes it similar to Rocket Pool) and you need to buy Abyss tokens.
Their social media is inactive since May (red flag for me) and this kind of tokenomic model I prefer to stay with Rocket Pool since it’s also permisionless and also gives us the possibility of using All Nodes.

Note: Please remember that good decision processes not always mean a good outcome, since the results relies on many other external factors (awesome book about this).
In addition, I have no technical background, so I can’t check by myself of the protocols mentioned in the post, so I relied on audits.

7

I’ll share here the comment made by @forgeron.eth on Telegram:

Solo staking by running a validator node adds a major trust assumption for the DAO. Having the skills the run a node is one thing but asking the DAO to trust someone to run the node without getting slashed is another. Whoever runs the node must have skin in the game, either reputation or financial (like staking his own ETH partially and/or getting a comm on the profits).

A DAO’s treasury is not meant for speculation unless it’s the mission of the DAO (an investment DAO). The DAO should prefer a low risk profile and liquid assets, especially when there is so little in the coffers to operate with. As opposed to a desperate gambling decision.

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I agree with JB 100%.

You can see the order in which I submit the options on my post

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