Got it - so no matter what - it still gets collected whether ETH or rETH2.
This is the part that I missed. 
Thank you for bumping it to my attention.
Still worth it to avoid the gas fees in all this.
Thank you for this - this is what I was looking for. 
Still a fan of Method 2! LFG! wen implementation?!
THIS! THIS! THIS! THIS! THIS! THIS! THIS!
Hey kiri, this part isn’t clear, please could you clarify?
example: 100 sETH2 staked for 1 year creates 4 rETH2 staking reward + 6 ETH MEV reward (which is restaked daily) so after 1 year we end up with 106 staked Eth in total (made up of 100 sETH2 and 6 staked Eth) and the 4 rETH2. Shouldn’t the 6 staked Eth therefore be given out as sETH2? As it’s literally staked Eth and will be yield bearing - literally sETH2, but you’re saying here it’s better to convert into rETH2 which isn’t yield bearing? In that case where will the yield from the staked Eth underneath go?
If i’m understanding this correctly this will cause an imbalance between actual staked Eth and sETH2 in existence.
If i’m understanding this correctly this will cause an imbalance between actual staked Eth and sETH2 in existence.
It’s correct that sETH2 supply will be less than the amount of principal in the validators, but this will be compensated by the supply of rETH2 amounting to total accrued rewards + total accrued MEV, so sum of supply of sETH2 and rETH2 is always equal to total validators’ balance.
You can think of it this scenario: whenever ETH is staked, it earns rewards. These rewards are distributed as rETH2. Now, whenever you distribute the rewards, they are distributed proportionally to one’s sETH2 holdings. Suppose MEV was distributed on the validator level (simply as ETH rewards that are not accessible ie cannot be immediately reinvested) - we would distribute them as rETH2. No biggie.
Now since MEV is distributed on the execution layer, these ETH rewards are accessible, and all we do compared to the scenario above is also stake them on the validator level to accrue even more rewards. It’s akin to compounding, and while it’s not as straightforward as before with sETH2 and rETH2, the main logic remains the same: sETH2 is the interest-bearing token, rETH2 is not. I hope this makes sense G!
I’d be happy with either method 
Hi everyone, I’m late to the party but thankfully not too late. I have a couple of questions.
In your post you mention three methods but only two are described. Just a typo or did you miss a third method?
With regards to the rETH2 distribution and your explanation here: This means that you collect MEV and general transation fees on the EL until you reach 32ETH and then just distribute a new validator to one of the node operators which ultimately leads to an accrual of more rETH2 because more validators are running. Did I get it correctly?
My third question goes into a totally different topic and might be relevant on a different forum post. Therefore my point can be split in two topics:
3.1. When should we include mev-boost or a different tool on the technical level? My question refers to the fact that mev-boost is a very new tool and might come with issues as it is a) another software component which can fail in general and b) since it is pretty new (is still in alpha I think) it could come with general issues that might lead to bad consequences. This was also mentioned in the ACD call from yesterday (19th August) so the recommendation from Danny Ryan was to maybe do a smooth transition from non mev-boost setup to mev-boost setup.
3.2. The second part is the current discussion about censorship. I think as DAO we need to decide whether it matters if validator operators will access censorship resistant or censored relays with mev-boost. I have a very strong opinion about that topic but maybe this needs to be discussed in a separate post.
Best,
Tobi
Thanks for your detailed reply.
Total staked Eth = Seth + reth…but over time not in the proportion you might think, which is confusing but results in apy growing (vs overall beacon chain) for Seth holders.
Playing this forwards to when withdrawals are open, seth redemptions will lead to further proportionate imbalance of underlying Eth staked vs Seth supply. As redeeming 1 Seth will obviously get 1 Eth, but that Seth has a claim on >1 underlying staked Eth. This will drive the price of Seth ahead of Eth over time, incentivising people to get Seth, either by staking fresh Eth or redeeming reth to buy Seth. To use some trendy crypto terminology, we could in effect say we have generated a ‘flywheel’ for Seth adoption… this is great news for the protocol.
You are pointing at an interesting issue actually.
But first: once withdrawals are open, you will be able to redeem both sETH2 and rETH2. The amount of sETH2+rETH2 = the amount of staked eth + consensus layer reward eth + execution layer MEV eth (restaked).
So 1 sETH2 would have a claim on exactly 1 eth, same for each rETH2 also 1 ETH. At least the way it would work now.
It looks likely that the consensus layer reward eth will be claimable in an earlier fork. If so they will be claimable before sETH2 and restaked MEV eth.
In effect at some point the need for rETH2 disappears, at that point consensus layer rewards could be restaked immediately.
Might it then not make more sense to not issue sETH2 for the restaked MEV rewards? Instead as your idea would suggest let them accrue to sETH2, resulting in 1 sETH2 becoming worth more than 1 ETH. OR instead of issuing these rewards as rETH2, issue them as sETH2? In which case sETH2 remains at 1 ETH, but you just get more of it.
At some point the need for rETH2 disappears and we can follow the same logic with those rewards as we did for the restaked MEV rewards.
Thanks all for the great discussion. In the light of that I would prefer method 2.
Thanks for building on the above points. Yes for cleanness I agree it makes sense for the restaked MEV to be distributed as Seth2 to all holders.
This method would have the following advantages:
I actually like this approach and it allows for the compounding effect to happen automatically. Take the MEV rewards and mint sETH2 and not rETH2 - so while initially you don’t get additional rewards - long term, it does increase your APR because you’ve already compounded the rETH2 (as sETH2).
Does this tokenomics model make sense? (not a financial whiz by any means). Whatever gas we’d have to spend minting the rETH2 rewards to distribute, would be the same for sETH2?
-brian
After some time to consider both options and leaning on the advise of others. I would prefer option 2 of restaking & distributing MEV rewards as reth2. It utilises and shows the benefit of having 2 token model. Allowing compounding and creating more opportunities to increase TLV of the pools.
Hey Tobias! Great stuff on all points - 1) I fixed the typo, 2) that’s correct, 3) the discussion about the technical side of MEV extraction will follow.
Thanks for your thoughts here @ottodv - as always a strong contribution
The main reason why we’d rather not make sETH2 a repricing token is that it becomes difficult to manage liquidity in the exiting sETH2/ETH pool (since sETH2 value will start trending up) and because it makes the tokenomics a tad more complicated (having both the repricing mechanism and the rETH2 accrual mechanism is tough to explain to new users). Given that it doesn’t result in a higher APR than the 2nd method, we decided not to mention it at all.
- highest possible APY for Seth2 holders due to frequent restaking of MEV rewards
@jodmary method 2 already achieves this
I actually like this approach and it allows for the compounding effect to happen automatically.
It doesn’t unfortunately - still requires us to deposit MEV rewards into the PoolDeposit contract & distribute the rewards. Also note that it doesn’t increase anything in the end - the “compounding” on the sETH2 level and the rETH2 that your “extra” sETH2 generates are both captured by the Method 2 anyway 
Thank you all for your responses & thoughts! We will now be proceeding to a Snapshot vote on the matter to solidify the DAO position on this important topic 
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