EIP-7521: A Look into Ethereum’s Proposed Validator Upgrades and Their Impact

EIP-7521, or MaxEB, represents a suite of proposed enhancements aimed at refining Ethereum’s staking dynamics. Currently under discussion, these upgrades are designed to expand the operational capabilities of validators on the Ethereum network by adjusting key parameters and introducing new functionalities. 

As Ethereum continues to evolve, understanding the implications of these changes is crucial for anyone involved in the network’s staking processes. This introduction will unpack the potential upgrades within EIP-7521, including a significant, optional increase to the maximum effective balance parameter and a reduction in the initial slashing penalty, alongside other strategic modifications designed to optimize validator operations and network efficiency. This article dives into the details and potential impacts of these proposed changes on Ethereum’s future.

What is the Ethereum EIP-7521 Upgrade?

EIP-7521, also referred to as MaxEB, is a handful of proposed upgrades. The specific pieces and exact functionality are still being determined, but some of the more likely parts include:

• Allowing validators the option of increasing the MAX_EFFECTIVE_BALANCE parameter from 32 ETH to 2,048 ETH. This does not change the minimum balance of 32 ETH required to activate a validator, but it would increase MAX_EFFECTIVE_BALANCE. A validator’s balance is important as it determines the rewards (and penalties) it receives for performing duties (or failing to perform duties), the likelihood of being chosen for certain duties, like block proposal, and slashing penalties. Currently, Ethereum “stops counting” after 32 ETH – MAX_EFFECTIVE_BALANCE; in other words, a validator does not earn any additional rewards by having a balance greater than 32 ETH. This is why any amount above 32 ETH is automatically swept and then sent to the validator’s withdrawal address.
• Reducing the initial slashing penalty from 1/32 of a validator’s balance to 1/4096. When a validator is slashed, a sequence of events begins. The first event is 1/32 of their balance is immediately burnt. The rationale for this change relates to removing barriers for higher balance validators – the fact that slashing penalties are proportional to a validator’s balance can cause some to avoid higher balance validators. Also, some research indicates higher balance validators could suffer larger penalties (see here).
• The ability to consolidate existing validators. 

The capability to set a custom threshold to automatically sweep ETH from the validator to the withdrawal address – was another part that was considered. The current thinking is that this capability will not be included in the Pectra upgrade.

Lastly, a separate, but equally important upgrade is EIP-7002 – execution layer partial withdrawals. For validators that choose to increase MAX_EFFECTIVE_BALANCE,automatic withdrawal sweeps would cease until a validator’s balance exceeds 2,048 ETH. To allow validators some flexibility EIP-7002 would allow the manual triggering of partial withdrawals.

Why is EIP-7521 Being Included in Pectra?

There is a large amount of networking overhead on Ethereum. The network stands close to 1,000,000 validators and approximately 10,000 nodes. There have been issues discovered in testing once the validator set size gets close to 2,000,000 (see here). This is why EIP-7514 has been included in the latest Deneb+Cancùn (Dencùn) upgrade – to slow the rate of validator growth, capping the activation rate at eight validators per epoch.

Slowing the rate of activations and holding it constant allows the core community (Ethereum Foundation and Core Devs) more time to find a solution. EIP-7521 (MaxEB) is that potential solution.

For more information regarding the MaxEB upgrade, you can refer to the official EIP website.

When is the Ethereum Pectra Upgrade Going to Happen?

The timing for the Pectra upgrade is unclear but is expected sometime during the first quarter of 2025.

What do Ethereum Stakers Need to Know?

There is nothing stakers need to do, but there are some new options with MaxEB.

For instance, if validators opt to update their credentials, it should be understood that the partial rewards sweep will now occur at 2,048 ETH (assuming that custom threshold capability is not included in Pectra) for them; if validators do not update their credentials partial rewards sweeps will continue above 32 ETH as they do today. Stakers can trigger a partial withdrawal from the execution layer (EL). Implementation details are pending, but the keys associated with the address funding the validators will likely be able to trigger partial withdrawals.

Similarly, it looks as if consolidations will be execution-layer (EL)-triggered. Like EL-triggered partial withdrawals – implementation details need to be released, but the keys associated with the address funding the validators will likely be able to trigger consolidations.

Each staker will need to think through the benefits and drawbacks of consolidation and make a decision accordingly.

Some considerations with consolidating:

• Validators that opt in to the new 0x02 credentials (“compounding withdrawal prefix”) will begin compounding and will likely earn more rewards than they would have otherwise. For one validator, at a reward rate of 3.48%, this amounts to about 6.3% over the course of 10 years, or 0.6% annualized.
• The ability to compound, or deploy additional ETH could be hindered if validators are consolidated in a haphazard manner (i.e., if you consolidate to the new MAX_EFFECTIVE_BALANCE of 2,048 ETH).
• Consolidation will likely simplify reporting.
  • An important note is to understand the implications of consolidating validators and their effects on any data being tracked regarding said validators.
• Although the initial slashing penalty is greatly reduced (as per above), should a consolidated validator commit a slashable offense, the penalty will be higher than it otherwise would have been.
  • A question here is if the validator is any more likely to be slashed if they consolidate than had they left the validators unconsolidated. This is a difficult question and more analysis is likely required. For instance, Maxim Merkulov has written an in depth analysis, in addition to a piece written by Dapplion.

• In the very, very unlikely scenario outlined in this piece, where Ethereum is experiencing inactivity leak and validators are unable to sign any attestations, higher-balance validators stand to lose more ETH, assuming these validators must wait to be exited and the state of inactivity leak continues for a long enough period for the validator to be exited.
• Each staker will need to understand tax considerations for the decisions they make. If receiving rewards is a taxable event in a staker’s jurisdiction, care must be taken with the consolidation decision.

• On the reward side, validators should be indifferent between consolidation and leaving unconsolidated.
  • To see this we need to break down the reward types and analyze how these change with a greater balance (for more on Ethereum rewards see Figment’s article on how to evaluate ethereum staking service Providers. piece):
    • CL Rewards – attestations
      • There is no difference between consolidating validators and leaving them unconsolidated in terms of attestation rewards. The key in determining attestation rewards is get_base_reward.
      • The important point to recognize is that the validator’s balance has a multiplicative effect on the calculation. This means that all else equal, two validators with a balance of 32 ETH have the same expected attestation rewards as one validator with 64 ETH.
      • The relevant sections of the Ethereum specs are:
        • get_base_reward
        • get_base_reward_increment
        • Incentivization weights
    • CL Rewards – proposals
      • Overall, CL proposal rewards are not expected to differ based on the decision to consolidate or not. Although these rewards are not dependent on balance, the probability of being selected to propose is proportional to balance – a validator with 32 ETH is twice as likely to be selected to propose as a validator with 16 ETH.
      • The relevant sections of the Ethereum specs are:
        • process_attestation
        • process_sync_aggregate
        • compute_proposer_index (for the probability)
    • CL Rewards – sync committee
      • As with proposals, sync committee rewards are not expected to differ based on the decision to consolidate or not. Sync committee rewards are not dependent on the validator’s balance, but the likelihood of being chosen to the sync committee does.
      • The relevant sections of specs:
        • process_sync_aggregate
        • get_next_sync_committee_indices (for the probability)

• EL Rewards
  • EL rewards are not expected to differ based on the consolidation decision. Like proposals and sync committee rewards, EL rewards are not determined by a validator’s balance, but the likelihood of being chosen to propose does depend on a validator’s balance.

This list is a sample of some of the considerations involved when thinking about consolidating validators.

Conclusion 

EIP-7521, or MaxEB, signifies a transformative step forward in Ethereum’s journey to optimize its validator mechanics and enhance overall network performance. By increasing the maximum effective balance and adjusting slashing penalties, this suite of upgrades is set to significantly alter the landscape for ETH stakers, offering new opportunities for rewards and network participation. 

As Ethereum continues to evolve with these proposed changes, stakers should consider the potential for increased flexibility and the strategic implications of consolidation on their holdings. As we await further details, stakers are encouraged to stay informed and prepare for the changes that MaxEB will bring to the Ethereum ecosystem. Additionally, it’s important to remember that these proposals are subject to change as they undergo further discussion and refinement within the Ethereum community.