Dynamic ETH Allocation: Ensuring Optimal Decentralization & Scalability

ETHx’ goal is to create a liquid staking protocol that is decentralized and scalable i.e. allow anyone to spin up validators in a permissionless way while also scale without any supply constraints. ETHx has a multi-pool architecture with currently 2 pools live:

  1. Permissionless Pool
  2. Permissioned Pool

Permissionless pool allows anyone to run validators on the Stader ETHx network by bonding 4 ETH and 0.4 ETH worth of SD thereby focusing on decentralization. Permissioned pool, which is a whitelisted set of node operators, helps scale supply of validators scale to meet excess user demand on the staking side.

The ETHx protocol at launch prescribed a 80: 20 ratio goal for allocation across the 2 pools, with 80% of the ETH allocated to the permissionless pool and 20% to the permissioned pool. However, allocation in practice is a dynamic exercise that is dependent on demand inflow, supply availability on the permissionless side and the need to generate a competitive staking reward rate through timely allocation of ETH to validators

To strike a balance between decentralization and competitive staking yields, we have implemented a dynamic allocation system:

  • Before allocation of ETH to the 2 pools on any given day, forecast permissionless supply of validators available in the next 3 days based on past 30 days average supply growth.

  • Reserve ETH sufficient for permissionless validators that will be available for the next 3 days. Allocate remaining ETH to permissioned validators to ensure competitive staking rewards rate.

  • During unstaking, ETH is unstaked from pool that has higher weight than this ideal weight to restore the 80:20 target ratio

This fluid approach helps ETHx offer competitive staking rewards in times of rapid users’ stake growth. As more independent validators join the permissionless pool over time, the ratio will move towards 80-20.

For example, if 1200 ETH is staked in a 24 hr period, and the 30-day average permissionless node growth is 10 validators per day, the system reserves 840 (10283) ETH in the deposit pool. Remaining 360 ETH is allocated to the permissioned validators.

We believe this data-driven mechanism for dynamically balancing decentralization and scalability is key to ETHx’s success as it helps offer a competitive staking rewards rate for users while also allowing sufficient reserves for permissionless validators.


Fantastic to see the system at play!

We were at 85:15 and a 14k ETH staked in October drove us to 60:40 ratio.

A few weeks later, we are at 62:38

So I can confirm that the system is working: it scales, and it rebalances!