Recent decision by the Verihash team to exit StakeWise on both Ethereum and Gnosis Chain has forced us to not only draw up migration plans, but to also consider making structural changes to how our service is run.
Hence, this proposal consists of several parts:
- We seek DAO approval for re-homing Verihash’s keys with the existing StakeWise operators. We propose to split the 191 Ethereum keys between Cryptomanufaktur, Finoa Consensus Services, and T-Systems in 63/64/64 proportion, respectively. We also propose to split the 9942 Gnosis Chain keys evenly between Cryptomanufaktur and StakeWise Labs (4971 keys each).
- We seek DAO approval for raising the staking commission on Gnosis Chain to 15% (from 10% previously) to improve node operator economics.
These proposals are split into 3 different Snapshot votes to make sure DAO members can weigh in on each initiative individually.
Below, we explore the merits of each proposal, share the migration plan, and launch a DAO vote on the matter.
The migration plan for Ethereum & Gnosis Chain
The migration plan we propose is the following:
- Operators generate the encryption keys with the following command:
ssh-keygen -t rsa -b 4096 -C “operator name”
- The public keys must be sent to StakeWise Labs, so that we could update the settings in CLI
- StakeWise Labs releases new CLI version
- VeriHash downloads the latest CLI and runs the export-validator-keys for both Gnosis and mainnet validators
- Verihash shares the folders with the operators
- Operators calll sync-db together with —private-keys-dir and —decrypt-key flags
- Verihash stops their validators on Gnosis and mainnet
- Everyone waits for 2 epochs to pass
- Operators update the decryptionKey in the web3signer chart and validatorsCount in the validators chart
The plan has been approved by all the participants already, and the first 2 steps have been executed. The biggest risk in this plan is successfully executing steps 8-9. To ensure a smooth completion of these steps, all the parties involved will be conducting the re-homing operation live on a call, which allows for swift & timely communication. The preparations for this procedure will begin as soon as it’s clear that the relevant proposals are going to pass the DAO vote.
Re-homing Verihash keys on Ethereum
After our discussion with the existing node operators, we believe it’s in everyone’s best interest to split the keys evenly. The reason for this is that more keys means better economics for every operator, and preferential treatment of some operators, whether they joined earlier or later, would not be justified. All the parties involved agreed with the approach and are awaiting the completion of DAO vote to begin re-homing.
Note that we are excluding StakeWise Labs from the distribution of keys as it already represents a significant share of the protocol’s validators and is less sensitive to the economics of running nodes right now.
Proposal: re-home 191 Verihash keys on Ethereum by distributing them evenly (63/64/64) between Cryptomanufaktur, Finoa Consensus Services, and T-Systems.
Vote for this Snapshot
Re-homing Verihash keys on Gnosis Chain
The Gnosis Chain situation is less clear-cut. The economics of running nodes on Gnosis Chain are considerably worse than on Ethereum, and unless an operator runs with a very lean setup, the operation is heavily loss-making. Adding a large number of GNO validators would be unprofitable for anyone at this point. This means that re-homing the keys from Verihash with the existing operators would worsen their economics on Gnosis Chain, which is a situation we wouldn’t like to create. Therefore, to successfully proceed with re-homing, we need to improve the economics of running nodes on GC and then allocate the newly spare keys to the operators with the leanest setup. We address the means to improve the economics in the next section, and focus here on the distribution of keys.
By looking at the numbers, Cryptomanufaktur and StakeWise Labs appear to be the leanest of the existing pack. Hence, provided the economics can be improved, they stand ready to receive the re-homed keys.
Proposal: re-home 9942 Verihash keys on Gnosis Chain by distributing them evenly between Cryptomanufaktur and StakeWise Labs.
Vote for this Snapshot
Increasing the staking fee on Gnosis Chain to 15%
The combination of the high technical requirements to run on Gnosis Chain and a low point in the economic cycle (which has a -ve effect on the GNO price and hence node operator revenue) have created unfavourable economics for running nodes on GC.
At full cluster resource utilisation, running 10,000 keys costs $1,000-1,250 / mo vs ±$750 of revenue for the leanest setup, for a net loss of ±$250-500 per month. Unfortunately, all of our operators currently experience such (or worse) losses.
While it is the duty of the node operators to anticipate the changes in the economics of their business in advance, the issue at hand here is the need to urgently re-home a large number of validators without acting against the node operators’ will. In other words, we cannot force them to take on the keys that will lose them more money than before, but still need to allocate almost 10,000 keys to someone. This calls for a structural change in our product on Gnosis Chain.
While StakeWise Labs could in theory host the whole bunch, this would contribute to further centralisation of the Gnosis Chain, where StakeWise is already controlling some 40% of the network. StakeWise Labs re-homing the entirety of the Verihash keys would alone represent nearly 20% of GC. Hence, these keys should be split between more parties than just StakeWise Labs.
The operator that is the closest to being in the green with ±5,000 extra keys is Cryptomanufaktur. However, they would only get closer to breakeven if StakeWise DAO starts charging 15% commission on the Gnosis Chain. That’s the structural change we believe is needed, not only for Cryptomanufaktur but other operators as well.
The benefit of increasing the fee to 15% is that there is less contribution to further centralization when Cryptomanufaktur (and perhaps others in the future) also takes a portion of the keys, and that the GC economics become somewhat better for everyone involved. The drawback, of course, is the higher fee that will be applied to stakers as a result of this change.
To put this into numbers, stakers will lose ca 0.6 percentage points of consensus-level rewards (annualised), earning 10.04% APR after the change (vs 10.66% APR now). We believe this is a tolerable reduction given the importance of keeping Gnosis Chain decentralized and the validator performance as solid as possible.
Proposal: increase staking fee on Gnosis Chain to 15% (from 10%).
Vote for this Snapshot
In light of the Gnosis Chain Merge on the week of December 5th, we are stopping short of proposing another measure that might be necessary - to forego the DAO share of the GC fees to further improve the node operator economics - to observe the effect of MEV post-Merge on the APR on GC. If the APR boost is sufficient to make the largest of the operators breakeven, we will not propose the change; if the APR boost is insufficient, the proposal will be on.
There is also an ongoing conversation with the Gnosis Chain team about allocating grants to the node operators to ensure continued support of the chain without further centralisation & degraded performance. If the grant request is approved, we will be able to diversify the keys away from StakeWise Labs and Cryptomanufaktur towards other operators, reducing centralization. For now, however, we focus on what we can control.