TLDR
- Stakers can use consolidations to switch staking service providers.
- This capability is open to all validators on Ethereum with some conditions (i.e., validators must be active and the target validator must have 0x02 withdrawal credentials).
- Using consolidations instead of exiting validators minimizes idle time of ETH – time during which ETH is not earning rewards.
- High caution is warranted to fully understand the consolidation process and to verify any third party tooling used for consolidations or when performing consolidations manually.
Introduction
With Ethereum’s Pectra upgrade, stakers gain a powerful new tool: validator consolidations. This capability allows validators to merge stakes or switch staking service providers without undergoing a full exit and reactivation process — reducing downtime and optimizing rewards. However, the process introduces new operational steps and security considerations that stakers must understand before taking action.
What is this Feature?
With Pectra, in addition to increasing max effective balance (‘maxEB’), active validators can be consolidated. This helps stakers reduce the number of validators they run without exiting these validators, exposing them to the withdrawal sweep delay and activation queue – both activities involve idle, unproductive ETH. Consolidations can also be used to switch staking service providers.
How Do Consolidations Work?
When two active validators are consolidated, the source validator is treated as exited, and its balance is transferred to the target validator. The target validator must have 0x02 credentials to be able to receive the stake from the target.
If a staker has two validators with 0x01 credentials, the first step is to choose the source validator and the target validator. Next the staker upgrades the credentials of the target validator to 0x02 by sending a signed message to the ‘Consolidation Request’ (‘7251) smart contract with the target validator pubkey twice. Once this has been completed another message is sent to the same contract, this time the signed message consists of the source validator’s pubkey and the target validator’s pubkey. See EIP-7251 for more about the smart contract and note that there is a (typically) small fee involved with consolidations.
The source validator enters the consolidation queue; while in the consolidation queue the validator continues to perform its duties, earns rewards and incurs penalties as usual – much like the exit queue. Once the validator has been processed through the consolidation queue it must wait for 256 epoch (~27.3 hours) to become withdrawable, i.e., the withdrawability delay. After the source validator is withdrawable, its balance is reduced by its effective balance, while the same amount is added to the target validator’s balance. The difference between the source validator’s balance and effective balance is transferred to the withdrawal address associated with the source validator.
Note that the consolidation queue is much like the exit queue in concept, but is driven primarily by consolidation requests and amounts and has its own churn limit. For more see compute_consolidation_epoch_and_update_churn and get_consolidation_churn_limit, as well as this helpful resource to monitor the queue.
Switching staking service providers through consolidations involves first deploying a validator to the new staking service provider. This validator should be deployed with 0x02 credentials; as mentioned above the target validator must have 0x02 credentials. The rest of the process is as described above – the source validators are those run by the prior staking service provider and the target validator, where all the stake will be transferred, is run by the new staking service provider.
In custodial staking arrangements, staking done through a smart contract, for instance, the above process will not necessarily work.
Potential Risks or Consolidations
Any staker considering consolidation of validators should exercise caution. The consolidation message is signed by the key associated with the withdrawal credentials of the source validator. It is this signature that is checked. There is no signature/ownership check related to the target validator. This means that there is the possibility for a validator to be consolidated into a target validator that is not controlled by the staker.
Whether using a UI or utility created by a third party or constructing the consolidation message manually, stakers are encouraged to exercise extreme caution and conduct thorough diligence and testing beforehand.
Conclusion
Validator consolidations are a major step forward for Ethereum stakers, offering flexibility, reduced idle time, and a smoother experience when changing staking providers.
However, with this power comes responsibility: ensuring secure credential management, tool validation, and a clear understanding of the consolidation mechanism. For those who proceed carefully, consolidations can make staking operations more efficient and future-ready.
Reach out to Figment today to learn more about validator consolidations, and staking Ethereum.
