The Unveiling of Ethereum 2.0 ETH Gas Station

While the world was fixated on the outcome of the U.S. presidential race, the Ethereum Foundation announced its own groundbreaking moment. The Foundation published the deposit contract address for the Eth2 mainnet, marking the beginning of a new chapter for Ethereum. Eth2 will have a MIN_GENESIS_TIME of 1606824000 (or for those of you who don’t think in Unix time – December 1, 2020, 12pm UTC). The announcement of the Eth2 launch was a milestone that many critics thought would never be achieved. The network is now ready to begin the transition from proof-of-work to proof-of-stake. Eth2 will be faster, more secure, and able to accommodate participants with even minimal computing power.

The transition roadmap involves several phases. Phase 0, which is currently ongoing, launches the beacon chain. Eth2 will essentially be 64 separate blockchains (called “shards”) that are anchored by a beacon chain. This chain has many management responsibilities, such as recording the block attestations produced by each shard, doling out rewards to block proposers, enforcing penalties against inactive or malicious validators, and so on.

Eth2 Launch pad

To take part in the launch of Phase 0, stakers need to deposit at least 32 ETH to become validators on the beacon chain. The Foundation created the Eth2 Launch Pad to make the set-up process easier for validators. Another option is to use pooled staking services like Lido or Stakefish that accept partial deposits. These services will handle the work associated with being validator on the network, in exchange for a percentage of the staking rewards.

The actual launch of the beacon chain will occur seven days after the contract receives 16,384 validator deposits. Staking rewards will begin immediately after the genesis event. The reward schedule for validators depends on how many people decide to participate in staking. The less ETH is staked, the higher maximum annual return rate for participants.

 

ETH validating Max annual

issuance

Max annual

return rate

1,000,000 181,019 18.10%
3,000,000 313,534 10.45%
10,000,000 572,433 5.72%
30,000,000 991,483 3.30%
100,000,000 1,810,193 1.81%
134,217,728 2,097,152 1.56%

Source: https://github.com/ethereum/eth2.0-specs/pull/971

 

Validators must perform work to receive these rewards. Tasks are assigned to validators every 6.4 minutes (an interval called an “epoch” in Eth2). Validators during Phase 0 will need to run a validator client and likely a beacon node as well. The role of validators is still rudimentary during this phase. The goal of Phase 0 is to maintain a validator list and establish the consensus protocol. Shards are not implemented until Phase 1, with the current Ethereum chain transitioning into a shard of its own in Phase 1.5. Transactions and smart contract executions will be possible in the second and final phase.

The primary cost for validators will be the 32 ETH staking collateral. The computing costs for validators are only a fraction of the collateral cost. Validators need to ensure that they remain online at least 50% or more of the time, or else they will be penalized. The offline penalty can also occur in the event that one-third of validators go offline at the same time. If this situation persists for more than four epochs (~25 minutes), then all offline validators will be penalized. Validators caught committing malicious behavior risk the more severe penalty of slashing, which results in the complete loss of one’s collateral.

Phase 0 also involves the opportunity cost of staking one’s ETH in the deposit contract. The bridge between Eth1 and Eth2 is one-way, meaning staked deposits cannot be unlocked until Phase 1 is rolled out. (Validators will be able to unstake but not recover their deposits during Phase 0.) The lock-up could last as long as 18 months after genesis or more. Ethereum developers decided to keep the bridge one-way to achieve steady security on the beacon chain and prevent the network from becoming under-collateralized. A one-way bridge also avoids the complexity of ETH and BETH (beacon chain ETH deposits) being traded on exchanges.

The deployment of the Eth2 staking contract was a defining moment for the Ethereum community. Years of strategizing and testnet iterations have paid off. Danny Ryan and the rest of the Eth2 development team deserve congratulations for building a network which will eventually support DeFi’s future growth. Today, Ethereum has more than $14 billion in total value locked and hosts a suite of impressive DeFi products like Aave, Uniswap, Compound, and more. The beacon chain will form the scaffolding for the future DeFi ecosystem and wider Ethereum community.

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