The Merge update for Ethereum stakers

The Merge update for Ethereum stakers

We are now days away from The Merge. The Merge is a groundbreaking achievement that switches the entire security layer of a live network from Proof of Work to Proof of Stake. There are a ton of great materials out there covering the details of this event, so we won’t go into too much detail here. Today, we wanted to focus on what the Merge will mean specifically to our stakers, the preparation work we’ve done, and our new fee structure.

Staking in a post-Merge world

Currently, as proposers of new blocks, miners have access to two additional sources of rewards aside from the coinbase rewards.

  • Transactions that get included in blocks have two types of fees: base fees and priority fees. The base fees get burnt automatically by the network. The priority fees are distributed directly to miners.
  • MEV (Maximal Extractable Value) extraction occurs as searchers look for profitable arbitrage opportunities on the Ethereum blockchain. When miners produce a block that includes the MEV searcher’s transactions, a portion of the MEV profit gets distributed directly to miners.

With the Merge, validators will be responsible for adding new blocks and securing the entire Ethereum network, replacing miners. Therefore, stakers can now expect 3 different sources of rewards: protocol rewards, priority fees and MEV rewards. What does this mean in numeric terms? Stakers will see reward rates bump up by approximately 30% and, depending on network conditions, even potentially increase up to 100%. For the exact calculation rationale behind these numbers, please take a look at this post from one of our validator peers, Attestant.

Implementation summary

As previously announced, we plan to run MEV-Boost in order to receive and distribute extracted rewards from MEV searchers. We’ve been testing out MEV-Boost on our infrastructure stack and are confident that we will be able to start processing bundles received from searchers who use the Flashbots’ relayer. While we will begin the initial couple of months with MEV-Boost, we will constantly monitor and assess all new relayers out in the market.

Now, the important part is how the priority fees and MEV rewards will be distributed. Priority fees and MEV rewards aren’t locked on the Beacon Chain like protocol rewards. Priority fees and MEV rewards can be claimed on the Execution Layer right after the Merge. When our validators propose a block, all of the priority fees and MEV rewards collected from that block will be sent to a smart contract which we’ve built to handle distribution to our stakers. Please note that our smart contract will pool priority fees and MEV rewards and distribute them proportionally to our stakers. Please note that our smart contract will pool priority fees and MEV rewards and distribute them proportionally to our stakers.

We have a new dashboard which our stakers can access from their deposit address (the address from which stakers first deposited their ETH to start staking with us). From here, stakers can claim the collected priority fees and MEV rewards any time.

New fee structure

We will continue charging 0.1 ETH per new validator but won’t be charging anything on the protocol rewards. We will charge 20% on priority fees and MEV rewards, the additional portion of rewards that will begin flowing in from the Merge.

Since priority fees and MEV rewards are unpredictable, we will be closely monitoring data for the first couple of weeks. We may make updates to our fees depending on network data and market conditions. The 20% fee will be automatically applied on the collected priority fees and MEV rewards before being paid out to stakers.

TL;DR

To recap:

  • Stakers will start earning additional rewards from priority fees and MEV rewards after the Merge.
  • We will charge 20% on the priority fees and MEV rewards and 0% on protocol rewards.
  • Our stakers won’t need to take any action to get ready for the Merge. Our stakers can claim priority fees and MEV rewards from our dashboard after the Merge.

We are excited to start securing the entire Ethereum network and deliver additional rewards to our stakers! See you all on the other side of the Merge!

About stakefish

stakefish is the leading validator for Proof of Stake blockchains. With support for 20+ networks, our mission is to secure and contribute to this exciting new ecosystem while enabling our users to stake with confidence. Because our nodes and our team are globally distributed, we are able to maintain 24-hour coverage.