Node Operator On-boarding and Node Operator Health in General

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Alright, there’s certainly a lot to unpack here. I’ll be brief to make sure readers don’t lose the plot, and that my response advances the discussion.

I will focus on the 3 issues at hand: i) viability of running nodes for Gnosis Chain (GC), ii) Verihash’s role as a node operator on GC, and iii) the topic of StakeWise’s growth / distribution of validators on Ethereum.

Viability of Gnosis Chain / running nodes there

Let’s start with the discussion of Gnosis Chain and running nodes for it. It is true that GC does not offer the same profitability as Ethereum for commercial node operators. This comes down to requiring just 1 GNO to launch a validator. With the requirement set this low, the incremental revenue from running a GNO validator is below the incremental cost for a range of GNO prices, which naturally results in losses in a bear market. This is the likely reason why participation in the network has been low recently, as nodes are turned off due to being uneconomical.

Why, then, the StakeWise team has made the decision to launch a liquid staking service on Gnosis Chain? For us, the decision to launch on GC was relatively simple: we were (and still are) bullish on the GNO token because of the products developed under the Gnosis DAO leadership, including Gnosis Chain, which still has the opportunity to be the canary network for Ethereum. There are challenges to this thesis - including the delay of the Merge, for example. However, this is not supposed to be simple and in our opinion should not be construed as a signal of failure for the network. I have not seen Ethereum’s faithful write off Ethereum when the Merge deadline kept being pushed out due to the challenge it represents. Why should we suddenly give up on GC then?

So in my opinion, GC failing to Merge so far shouldn’t lead to us dropping the network - instead, we could probably do more to help the Gnosis team complete the process. The same applies to pushing the GC ecosystem into the DeFi landscape as a testing ground, i.e. making sure its adoption rises based on its purpose. It has barely been 6 months since we launched on GC - let’s have a little faith.

That being said, the burden on the node operators is going to stay regardless of the chain’s adoption, for as long as GNO price remains below the b/e point. While anybody running nodes for the network should have been prepared for operating in the current market environment before they decided to run nodes, if it becomes a matter of life or death for the business, someone should step in and help if they can. The StakeWise team has discussed the various alternatives available in this situation with the team at Gnosis, and will present a few alternatives for public discussion shortly.

Finally, on the share of the GC network currently controlled by StakeWise and plans to self-limit. The reason the team has stopped short of adding more nodes to allocate the idle GNO is precisely the fact that StakeWise DAO already controls 33% of the staked GNO, and growing above that percentage risks threatening network’s liveness. Sadly, this does result in a subdued APR for the end-customers. While some seem to consider this “crappy” service, we believe it’s the best alternative among the available options.

Verihash on GC & involvement with StakeWise

Verihash has been a genesis operator in StakeWise Metro and together with CryptoManufaktur was the first to start receiving ETH & GNO allocations. Perhaps contrary to the statement made in the post, Verihash was not required to join GC to start receiving ETH allocations - both the documentation (GC being treated as a bonus) and the internal communication records show that the StakeWise team has offered (not demanded) Verihash to run nodes on GC, and the Verihash team promptly proceeded to prep for accepting delegations. It also cited internal calculations in that communication that demonstrate that some amount of due diligence went into the decision. Hence, I personally struggle to see the issue with other node operators perceiving GC as an option, not a requirement (and still deciding to join, e.g. Finoa).

When it comes to Verihash experiencing financial difficulties due to supporting GC and not receiving sufficient ETH delegations due to additional node operators joining StakeWise DAO on Ethereum, the StakeWise team will communicate directly with Verihash about the potential support for resolving the matter. We’re not a central authority or a regulator to be in the position to offer a rescue package, but we just want to ensure we help where we can.

Finally, on the topic of participating in the Validator Committee: there have been plenty of discussion before the roll out of StakeWise Metro about the various options for achieving our goals. But the design decisions that were ultimately made may be different to what has been discussed with various parties. The StakeWise team has discussed the possibility of Verihash being represented in a Committee that assesses the applications made by the node operators to join the DAO, along with other potential members of the genesis operator set. However, this idea was later dropped due to the possibility that genesis node operators act against the inclusion of others to receive more delegation themselves. StakeWise team takes the responsibility for not clearly communicating as much to the Verihash team; however, we also note that there has been no opposition voiced to the final Validator Committee arrangement when it was introduced, as evidenced by the comments in this thread: Introduce Validator Committee to the StakeWise DAO - #3 by bgraham-vh.

Growth of StakeWise & Ether allocations

A lot in this thread has been dedicated to criticizing the StakeWise team for the lack of growth initiatives & failure to attract more deposits. While the SWAT criticism is appropriately placed (and the blame is solely with me), the rest of the rhetoric ignores the important facts: the StakeWise team is utilizing every possible measure at its disposal to return to consistent growth. Some examples:

Unfortunately, some of these initiatives will never materialize (e.g. Tribe DAO shutting doors), some take time (e.g. getting Nexus over the line), and some are in development (e.g. V3 and dsETH). These facts cannot be ignored if our goal is to find the root of the problem ie the challenge with growing TVL. Just like Verihash, StakeWise DAO is facing a bear market in which DAOs collapse, LSDs lose peg (which leads to a drop in new Beacon Chain deposits), and activity on the chain idles out. This is a risk like any other, and dealing with such risks successfully requires strong partners, which StakeWise aims to be for the organizations and individuals we work with. Verihash is no exception.

To address other points:

  • In response to the criticism of the allocation of new Ether to the node operators, the StakeWise team will review the alternatives to the existing system with the goal of helping the node operators improve their financial position. Stay tuned for the updates on this topic.
  • In response to the absence of rGNO liquidity, the team will discuss with Gnosis about the possible options to improve liquidity. The team believes that rETH2 liquidity is pretty deep and doesn’t see the merit to an argument that rETH2 conversions incur substantial losses. Still, we’d be happy to listen to the Verihash team’s ideas for how their situation can be improved.
  • StakeWise Labs is happy to commit to not accepting any delegations (just as it has before) until the amounts of ETH staked are spread evenly across the node operator set.

I hope I have not missed anything but if I have, I hope someone points me at it so I can address it.

Personal note: it saddens me to see @bgraham-vh 's frustration expressed in such crude form as was seen here, and I’ll avoid dramatizing things further. My only comment is that while we are indeed a DAO where public discourse should touch both the positives and the negatives of the service, I believe the nature of async public discussion requires us to minimize fluff and get to the point. I also believe the nature of the relationship between node operators and the DAO is first and foremost a business relationship, and as such communication must be conducted in a professional manner. We can discuss the issues at hand without emotion here, and I firmly believe it will help us get to the root of the problem & solve it faster this way. I hope this approach resonates with others.

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