We contributed to Lido DAO, P2P.org, =nil; Foundation, DRPC, Neutron and invested into 150+ projects
We are excited to share an update on the MVI Grants program. The Grants selection committee – Artem Kotelskiy, Brett Palatiello, Elias Simos – have reviewed many high-quality applications, and selected five stellar teams that are complimentary in their expertise and approaches.
Since the proposal to reduce the ETH issuance was suggested [1, 2, 3, 4], the Ethereum community has been actively discussing its monetary policy.
When considering issuance reduction, there is a trade-off for the network between the amount of ETH spent on rewards and how decentralized its validator set is. In particular, one of the main downside risks of reducing issuance is the potential concentration of staked ETH, especially in the view of the upcoming ETF launch [5]. There are also a variety of other risks and factors associated with issuance reduction: margin compression, the resulting pressures on certain market segments, as well as increasing barriers for innovation [6, 7, 8].
These factors touch the core values of Ethereum: decentralization and censorship resistance. Hence we believe that an evaluation of these risks is needed, in the form of a deep analysis of how the issuance curve change could affect the validator set composition.
Broadly speaking, the grants will focus on:
Profiling different actors within the staking economy, via interviews and field research, to uncover key data points such as preferences, frictions, supply curves, elasticities, costs, etc.
Gathering, studying and deducing the data above using the historical Beacon Chain and DeFi data sets.
Building out theoretical models, taking into account the data above.
Studying equilibriums & limits, doing simulations, and ultimately understanding & evaluating the risks of how changing issuance may affect the staking ratio & the validator set.
Below we provide more information on the specific grants.
Team: Matthias Hafner, Juan Beccuti, Thunj Chantramonklasri, Nicolas Oderbolz, Nicolas Greber, Beatrix Marosvölgyi — economists, mechanism designers and modelers within the cryptecon.org crypto research group.
Focus: "In order to limit the continued growth of staking in the Ethereum ecosystem, adjustments to the current issuance schedule have been proposed. However, the potential impact of such changes to the issuance policy on different types of actors in the staking ecosystem remains under-explored. To this end, the research team at the Center for Cryptoeconomics aims to contribute to the community's understanding of the effects of changes in the issuance schedule to the different types of stakers and the potential risks associated to the Ethereum ecosystem. First, we will develop a theoretical model that focuses on the interactions between different stakeholder types and their underlying economic mechanisms. Second, we will use historical data to estimate, where possible, differences between the supply curves for each stakeholder type. Finally, we will combine these results in an agent-based model that allows us to simulate the impact of the proposed supply curve on the relative concentration of different types of stakers participating in the staking economy."
Team: Philipp Zahn, Wenxuan Deng, Fabrizio Genovese, Daniele Palombi — mathematicians, economists and modelers within the 20squares.xyz crypto research firm. Focus: “In this project, 20squares will first focus on modeling a framework for estimating staking decisions relative to a given issuance curve and external factors. In layman terms, we will try to model the economic environment in which all the involved actors - solo stakers, liquid staking providers, etc. - live and make decisions. Using past data, we will focus on what can be inferred on individual staking behavior in the past years. Then, we will update the model with the changes brought about the recent issuance change proposals, and we will study how this affects each party's behavior. As for deliverables, we will publish reports and codebases with our findings.
Team: Vivian Zhu, Otakar Korinek — members of the research committee at franklindao.xyz, a DAO formed by students out of UPenn. Focus: ”Our focus with this grant is to profile different actors within the staking economy and build a mutually exclusive and collectively exhaustive landscape. Specifically, we will dive deep on supply curves of stakers and different actors’ preferences, frictions and costs. We will conduct interviews and field research with various actors in the Ethereum staking network, and share an in-depth analysis of motivating factors and differentiators from both philosophical and technical lens.”
Team: Kshitij Kulkarni — crypto researcher, finishing CS PhD at Berkeley, working with Gauntlet.
Focus: “My project plan is to build a theoretical model to study how the proposed issuance curve change affects the various parties involved in Ethereum staking, including solo stakers, decentralized staking service providers (D-SSPs), and centralized staking service providers (C-SSPs). The model will be fundamentally driven by optimization and dynamical systems theory. The goal of the model is to incorporate investors' preferences when choosing one of these services and study the long run distribution of stake, along with how additional sources of yield (such as MEV and restaking) may affect investors' decisions. Finally, I plan on simulating the theoretical model for various realistic scenarios.”
Team: Antero Eloranta, Santeri Helminen — crypto researchers, worked with Flashbots and Token Terminal.
Focus: “The grant aims to conduct an analysis of the potential effects of Ethereum's proposed issuance curve change on different staker groups of staking ecosystem. Through tracking staking groups' behavior, analyzing market conditions' impact, and evaluating the costs and benefits of utilizing Staking Service Providers versus solo staking, the project aims to provide valuable insights into the potential consequences of the proposed change. The grant focuses on providing a neutral and data-driven assessment for different stakeholders. By analyzing these dynamics, we aim to identify potential risks associated with the issuance curve change proposal. This analysis will help inform well-balanced decision making regarding the future Ethereum staking ecosystem.”
In the view of the existing conflict of interest (we hold ETH, LDO and are involved with P2P), we publicly share a neutrality statement that we sent to every grants team that we have funded:
A. One of the main goals with this grant is very directional: to explore the downsides and risks of the Ethereum Issuance reduction proposal. Put another way, we do influence the questions studied in this grant. However, in no way do we want to influence the answers to those questions that you obtain from your research: in your reports please strive for the highest level of integrity and neutrality. B. We also want to highlight the following related subtle point: in the research around Ethereum Issuance, you will be studying lots of particular factors, and it is our intention for you to assess how severe certain factors affect the risks and downsides of Ethereum Issuance reduction. However, if you want to make an assessment of the issuance change proposal itself, you would need to take into account all the factors in one way or another (you may argue that some arguments are more important than others, and focus on those that are more important; but you need to address all the arguments, including those that were researched in the previous studies). To summarize, we suggest that results of your work are framed as an assessment of a particular risk/downside of the Issuance reduction, rather than assessment of the Issuance reduction itself (you can do the latter as well, but in this case the scope needs to be expanded).