MEV - Negative BC Commission

The current approach to MEV aims to fairly share both Execution Layer and Beacon Chain rewards. Since EL rewards are ultimately controlled by the node operator, this then leads to the need for monitoring and potentially penalizing operators that do not share. But ultimately the goal is to give liquid stakers a fair share of aggregate rewards, no matter the individual breakdown.

A different approach that Val has already written about, could be to concede 100% of EL rewards to the node operator and make up for the lost APR by giving a larger share of BC rewards to rETH. This means a lower commission on BC rewards, likely even negative. There would be no need for a penalty system for negative commission minipools.

This design would not be compatible with the existing minipool delegates, so it would be optional and a penalty system would still be necessary for legacy minipools.

Under this system, node operators receive proportionally less BC rewards and proportionally more MEV than a solo validator, so this is the opposite effect of the smoothing pool, where volatility of rewards is higher compared to a solo validator. In exchange, these 100% EL minipools would be trustless in the sense that there is no risk of collateral being unfairly penalized. This tradeoff might only be attractive for larger node operators with many minipools that have a smoothing effect from their size.

Design Considerations

Adjustable Commission

The yield for rETH from a negative commission minipool should be equivalent to a regular minipool. Since the relation of EL rewards to BC rewards fluctuates over time, there is not one correct value. Instead, the commission will have to change over time to guarantee a fair outcome.

This could be implemented as a pDAO setting. Since Shapella enabled skimming of rewards, only future rewards would be affected by a commission change so the exposure to a malicious pDAO vote is limited and could be reduced further by adding a timelock to the setting change.

Dual State

A challenge created by an adjustable commission is that node operators could wait on distributing rewards until a favorable change happens and game the system that way.

To address this, the current commission can be stored in the minipool when it is created. Every distribution of rewards uses min(stored_commission, currrent_commission) and updates stored_commission. If the pDAO votes to increase the commission, a node operator gains nothing by delaying a disttribution. If the pDAO votes to reduce commission, a node operator can distribute before the change takes effect.