The growth of Ethereum has led to the continued increase of validators who participate in the network’s consensus process. Ethereum researchers have expressed concerns about the potential instability in the network due to the continued increase of validator sets. 

Read on as we discuss EIP-7251 and its role in addressing these concerns. 

What Is EIP-7251 (MaxEB)?

EIP-7251, or MaxEB, is an improvement proposal for the Ethereum network that aims to address the issue of ‘redundant validators.’

EIP-7251 proposes lifting the maximum amount a validator can stake from the current 32 ETH to 2048 ETH while maintaining the minimum staking balance limit at 32 ETH. 

The goal is to allow large node operators to consolidate their validator sets, potentially reducing the number of validators and increasing the network’s efficiency. Validators won’t have to fully exit and re-enter the protocol to merge their effective balances.

For solo stakers, EIP-7251 will enable them to earn compounding rewards and stake their ether in more flexible increments. For example, a large node operator with 2048 ETH can consolidate 64 validator sets into one, while a solo staker with a 45 ETH balance only has to dedicate resources to one validator set. 

As of March 2024, the Ethereum network has over 950,000 validator sets. Theoretically, this means the network is truly decentralized. However, while the network recognizes each validator as a unique entity, a party can run several validators on the same device. 

EIP-7251 proposes lifting the maximum effective balance limit to allow consolidation and accurately reflect the network’s decentralization levels.  

How Does EIP-7251 Work?

EIP-7251 proposes to reduce the number of validators while maintaining high economic security on the Ethereum network. 

EIP-7251 relies on four key features that make it work: 

  • Creating a minimum balance and increasing the maximum balance: EIP-7251 proposes creating a minimum activation balance of 32 ETH and increasing the maximum effective balance from 32 ETH to 2048 ETH. 
  • Combination of multiple validator sets: With the increased maximum limit, large node operators combine their validators without cycling through the exit and activation queues. This helps speed up the staking process while decreasing costs due to the in-protocol consolidation. 
  • Adding execution layer partial withdrawals: Execution layer messages trigger partial withdrawals in addition to full exits. For example, a validator with 200 ETH staked can remove 50 ETH without exiting. This increases the flexibility of staking configurations, allowing validators to control the moment and amount they withdraw. 
  • Custom effective balance ceiling: EIP-7251 enables validators to customize the maximum amount that activates partial withdrawals. 

Reasons For and Against MaxEB

There are several compelling reasons to make the case to increase the maximum effective balance: 

Addressing Consensus Layer Challenges

Under the current limits, the network experiences high withdrawal loads from exceeding the maximum effective balance. Additionally, the large validator sets strain the resources and cause network delays.

Consequently, reducing the number of validators addresses this problem, especially as the network continues to scale. 

Allows for Future Upgrades 

Upgrades to the Ethereum network, as noted on the roadmap, such as single-slot finality and enshrined proposer-builder separation, rely on a low validator set. The consolidation helps lay the groundwork for the implementation of such upgrades. 

Competitive Solo Staking

While large node operators appear to be the key EIP-7251 beneficiaries, solo stakers also have something to gain. Individual stakers can stake flexible amounts of ETH and enjoy the compounding rewards. 

Reduced Overhead Costs

For large node operators, the 32 ETH ceiling presents the logistical challenge of running thousands of validators on a single machine. EIP-7251 minimizes the hassle by reducing the number of validators. This also brings the operating cost down, which maximizes the returns. 

There are several reasons against MaxEB: 

Slashing Risk

A Proof of Stake (PoS) network such as Ethereum promotes economic security through slashing. Slashing involves partial or full destruction of a validator’s staked assets if they are deemed responsible for actions that threaten the network’s security. MaxEB raises the maximum limit a validator can stake, increasing their slashing risk. 

The Ethereum community is aware of this risk and proposes modification of the slashing penalties. The idea is to introduce non-linear slashing mechanisms that will encourage consolidation. 

Complexity

The current ceiling of 32 ETH per validator makes it simple to consider different consensus aspects. Raising it to 2048 ETH may draw focus away from other critical areas. This may lead to a drop in the network’s security levels. 

Decentralization

As of March 2024, there are over 950,000 validator sets on the Ethereum network. Consolidation under MaxEB will significantly reduce that number. Consequently, there might be an imbalance in committee influence. This goes against the principles of decentralization, as a malicious actor can potentially dominate a committee and execute a 51% attack.  

Regulatory Interference

With auto-compounding validator rewards possible after implementing EIP-7251, regulators may find grounds to argue that ETH is an interest-bearing security.

Currently, validators are considered service providers who earn rewards for securing the network. Implementing EIP-7251 will lead to more rewards for validators with a higher balance, which may offer regulators grounds to argue that being a validator is the equivalent of a savings account in a traditional bank. 

The Bottom Line

EIP-7251 proposes significantly reducing the number of validators without making major changes to the Ethereum network. 

There are key issues that the community needs to address to ensure its implementation doesn’t affect the network negatively. The community has acknowledged challenges such as slashing concerns and has made proposals to address them. However, others, like regulatory concerns, have yet to be fully explored.

Overall, EIP-7251 presents a pathway to an efficient Ethereum network, provided the community addresses all concerns before implementation.