When we plan to participate in Ethereum’s PoS staking protocol, the plethora of various pools and node operators can be overwhelming, making it difficult to choose which one to stake with. At this point, do you follow the crowd, or are you willing to think independently and make a rational choice based on data? This decision affects not only your personal interests but also the development of the Ethereum protocol ecosystem.

In this article, I will analyze all the relevant indicators for Ethereum staking and explain the meaning of each indicator using simple language and vivid analogies.

Table of Contents:

Four major indicators:

1. Participation Rate

2. Inclusion Delay

3. Correctness

4. Effectiveness Rating

Indicators related to rewards:

1. Network Penetration

2. Backward-looking APR%

1.Participation Rate

When Ethereum transitions to Proof of Stake (PoS), validators play a crucial role. We can imagine the entire Ethereum PoS network as a large sports event, with validators acting as the participants.

Each epoch is like a match. Participants (validators) need to perform well in each game and submit their results (attestations) within the specified time. When a participant’s results are recorded in the event’s history, it means they have successfully completed the match.

Participation Rate is like measuring each participant’s involvement throughout the season. Participants with high participation rates generally mean they are more reliable in the competition and better at maintaining network security. However, if participants fail to submit their results, they may face penalties.

When choosing a validator to participate in Ethereum PoS staking, Participation Rate is an essential indicator. A validator with a high participation rate typically performs well in the network, maintains network security more effectively, and is more reliable in completing validation tasks. This helps ensure the stable operation of the Ethereum network and brings higher potential returns for investors.

In calculating the participation rate, the numerator is “the number of epochs a validator’s attestation was included on-chain”: this refers to how many epochs a validator has successfully submitted attestations and been recorded on the blockchain.

The denominator is “the number of epochs that validator is active”: this indicates the number of epochs a validator is active in the network, reflecting the total number of times the validator attempts to participate in validation work.

For example: Suppose a validator is active in 100 epochs. In these 100 epochs, it successfully submits attestations for 90 epochs and is recorded on the blockchain. Then, we can say the validator’s Participation Rate is 90%. This is because it successfully participated in 90 epochs of work, while there were 100 epochs of opportunities.

2. Inclusion Delay

Inclusion Delay is an indicator that measures the time it takes for a validator’s submitted attestation to be recorded on the chain. This indicator reflects the timeliness of a validator’s attestation.

To give an imperfect analogy, the Ethereum network is like a post office, and validators need to deliver letters (attestations) to this post office. When they complete the validation of a block, they create a letter (i.e., attestation) and send it to the post office (i.e., broadcast it to the Ethereum network).

Ideally, validators want their letters to be delivered as soon as possible and processed by the post office (recorded on-chain). However, in reality, various reasons may cause delays in letter delivery, such as network congestion or hardware failures. Consequently, the actual time the letter arrives at the post office may be later than expected.

Inclusion Delay is an indicator used to measure this delay. Specifically, it calculates the average difference between the expected letter delivery time (i.e., the expected slot) and the actual time the letter is processed by the post office (i.e., the slot recorded on-chain).

A lower Inclusion Delay indicates that a validator’s submitted attestations can be recorded on the chain more quickly, thereby improving the overall efficiency and security of the network.

Calculation: The calculation method for Inclusion Delay is by measuring the difference between the expected slot and the actual slot recorded on-chain for a validator’s submitted attestations, then averaging these differences.

The specific steps are as follows:

1. For each validator, find their submitted attestations.

2. Determine the expected slot for each attestation. This is usually the slot assigned to the validator in that epoch.

3. Determine the actual slot when each attestation is recorded on-chain. This can be obtained by checking the blockchain data.

4. For each attestation, calculate the difference (i.e., delay) between the expected slot and the actual slot recorded on-chain: delay = actual slot - expected slot.

5. Calculate the average delay of all validators’ attestations.

3.Correctness

In Ethereum 2.0, correctness is an indicator that measures whether a validator can accurately identify the state of the chain when submitting attestations. It includes two aspects: Head vote and Target vote.

If we imagine the entire Ethereum PoS network as a large team, each validator is a member of the team. Their task is to build a complete skyscraper, with each block representing a floor of the building.

A Head vote is like confirming the most recently completed floor of the construction project. Validators need to constantly pay attention to the progress of the building to ensure they have the latest information. This is similar to team members needing to maintain close communication and collaboration with other members to ensure they have a clear understanding of the overall project progress.

A Target vote is similar to team members regularly assessing key milestones in the entire project to ensure it proceeds according to the predetermined direction and goals. Casper FFG target checkpoints are these key milestones, and validators need to make correct decisions at these checkpoints to provide support for the solid construction of the building.

In this team, each member’s performance affects the efficiency of the entire team and the success of the project. Correctness is an important criterion for measuring the performance of each validator in the team. Outstanding validators can accurately complete Head vote and Target vote tasks, contributing to the construction work of the entire team. Poorly performing validators may slow down the progress of the entire team and may even be penalized for incorrect decisions. Therefore, when choosing a validator to participate in Ethereum PoS staking, correctness is an indicator worth paying attention to.

4.Effectiveness rating

The Effectiveness rating is a score that measures a validator’s performance on the Ethereum beacon chain. It is calculated by taking a weighted average of the effectiveness of proposers and attesters.

In Ethereum, proposers and attesters play different but equally important roles. We can compare them to a “parliament.”

In this parliament, proposers are like lawmakers who propose bills. They are responsible for creating new blocks and packaging transactions into them. Attesters, on the other hand, are like lawmakers who vote on these bills. They need to validate and confirm the blocks proposed by the proposers.

During each block period, a proposer will propose a new block, and a series of attesters will confirm the block. If enough attesters endorse the block, it will be added to the blockchain, forming a consensus.

Since Ethereum underwent The Merge, the ratio of rewards between the execution layer and the consensus layer is close to 1:4. Therefore, in the post-merge effectiveness scoring model, the weights for proposers and attesters are ³⁄₈ and ⁵⁄₈, respectively. The formula is as follows: validator_effectiveness = (³⁄₈ * proposer_effectiveness) + (⁵⁄₈ * attester_effectiveness)

For example, suppose a validator has a proposer effectiveness of 0.9 and an attester effectiveness of 0.8. In that case, its Effectiveness rating can be calculated as: (¹⁄₈ * 0.9) + (⁷⁄₈ * 0.8) = 0.1125 + 0.7 = 0.8125

It is worth noting that with the recent surge in gas fees, the rewards for the execution layer have been rapidly increasing. The ratio of rewards between the execution layer and the consensus layer has reached 1:1, sometimes even exceeding the consensus layer rewards, forming a completely reversed situation compared to the past.

I believe that in the future bull market of Ethereum, the rewards from the execution layer may become the main source of rewards for validators. Therefore, your choice of staking protocol, their node operators, which MEV-BOOST relay they are connected to, and their market share will be important factors to consider. If you also pursue decentralization, factors such as client diversification, resistance to censorship, and the degree to which the protocol or node supports these features should also be considered, in addition to your own returns.

5.Network Penetration

“Network penetration” refers to the stake percentage of a specific mining pool within the entire Ethereum beacon chain. It is calculated by dividing the active stake in the mining pool by the total active stake on the Ethereum beacon chain. The “active stake” here refers to the balance obtained by accumulating 32 ETH as a unit.

For example, suppose there are a total of 1000 ETH in active stakes on the Ethereum beacon chain, and a specific mining pool has 200 ETH of active stakes. In that case, the “Network Penetration” of that mining pool would be: (200 ETH) / (1000 ETH) = 0.2 or 20%. This means that the mining pool occupies a 20% stake share within the entire beacon chain.

It should be noted that the “Network penetration” indicator only considers the initial 32 ETH stake of each validator; any amount exceeding 32 ETH is not included in the active stake calculation.

Moreover, if one or a few protocols occupy too large a stake percentage in Ethereum, it will pose serious centralization risks, harming the interests of the entire ecosystem. We can see that the top 2 staking entities, Lido and Coinbase, occupy more than 45% of the Ethereum PoS staking market share, and the top 5 staking entities account for 57% of the market share. The risk of centralization should not be underestimated.

6.How to Calculate Backward-Looking APR% (Annualized Return Rate)

“Backward-looking APR%” is an indicator used to measure the annualized return rate for a specific period in the past (e.g., 1 day, 7 days, 30 days, or all-time). It reflects the actual returns on our staked Ethereum over that period. Here’s a simplified calculation method:

1. Choose a time frame (e.g., 1 day, 7 days, 30 days, etc.).

2. Calculate the total rewards earned during that period (including consensus layer (CL) and execution layer (EL) rewards), then divide by the active stake (not considering additional rewards earned).

3. Calculate the total active stake for each entity within the given time frame. This is mainly achieved by calculating the number of active validators for each entity and multiplying it by 32 ETH (the required stake per validator).

4. Calculate APR%: (Total Reward ETH / Total Active Stake) / Time Frame * 365 days * 100.

Currently, the longest time range is limited to 90 days for better comparison and to avoid the influence of double-digit APR% generated by early joiners like genesis validators.

The most critical factors affecting APR returns are the two types of rewards from the consensus layer (CL) and execution layer (EL). As validators, the difference in consensus layer rewards is minimal, as every normally functioning staker will submit attestations to receive rewards. However, only validators selected as proposers receive execution layer (EL) rewards, and obtaining these rewards has a certain probability. The number of times a validator is chosen as a proposer throughout the year follows a normal distribution. The luckiest validators can submit 39 blocks, while the unluckiest ones can only submit 15. This results in significant differences in EL rewards between the luckiest and unluckiest validators, which is reflected in the varying APRs among different staking protocols over time.

By considering these six main indicators, we can comprehensively evaluate the reliability of a staking protocol or node operator. Notably, many node operators did not update their clients to the latest version before and after the Shanghai upgrade, causing a temporary decline in most indicators. Also, the recent incident where the Ethereum beacon chain temporarily lost finality is a test of staking protocols and node operators’ ability to handle emergencies under extreme conditions.

As an Ethereum staker, most people are optimistic about the long-term prospects of the Ethereum ecosystem. A safe and stable staking protocol and node operator are crucial focus points for every Ethereum staker. We hope this technical article provides a clearer perspective for Ethereum stakers, helping you make informed choices.