Abstract

This proposal is a strategic initiative to optimize Decent's treasury assets by converting a portion to ETH and establishing validator nodes on the Ethereum network. The primary objective is to generate passive yield on idle treasury assets, enhance decentralization commitment, and deepen technical understanding of the Ethereum network. Leveraging Staking as a Service (SaaS) through Allnodes, Decent plans to set up 10 Ethereum validators, starting with the purchase of 32 ETH and scaling based on market conditions.

The proposal emphasizes a phased approach, separating ETH acquisition and validator node setup, with periodic reassessment to adapt to market dynamics. Decent commits to flexibility, regularly evaluating the evolving landscape for SAAS validator solutions. This proposal aims to position Decent DAO at the forefront of the Ethereum community, contributing to its financial sustainability and technical expertise.

Project Background

By converting a portion of its treasury to ETH and then setting up validator nodes, Decent DAO will be able to generate yield on its idle treasury assets, back up its commitment to decentralization, and increase its technical understanding of the Ethereum network.

Staking as a Service

"Staking as a service (“SaaS") represents a category of staking services where you deposit your own 32 ETH for a validator, but delegate node operations to a third-party operator. This process usually involves being guided through the initial setup, including key generation and deposit, then uploading your signing keys to the operator. This allows the service to operate your validator on your behalf, usually for a monthly fee." ethereum.org

Allnodes

Overall, Allnodes provides the least effort to set up a node, with the lowest monthly costs. However, there is increased centralization risk and execution diversity risk due to being required to run Geth as the execution layer client. Allnodes is generally liked by the Ethereum staking community, with zero historic slashing events.

Goals and Deliverables

1. Generate passive revenue
2. Position Decent’s brand closer to the core ETH community
3. Improve organizational knowledge of how the Ethereum network works

Deliverables

• 320 ETH
• 10 Ethereum Validator Nodes

Timeline

December 2023 Decent will purchase 32 ETH.

Post-Decent Foundation Funding Decent will set up one validator and monitor its performance for 4 weeks.

Through Summer 2024 Decent will continuously monitor market conditions, purchasing quantities of 32 ETH at a time during down cycles, and spinning up nodes until it reaches its 10 validator goal.

Resources

Financial Requirements

32-320 ETH The first action needed for this project is to convert a portion of Decent DAO’s treasury from stablecoins to 32 ETH.

Roles

Multi-Sig Treasury Signers As owners of the Decent treasury multi-sig Parker and Adam will co-sign for treasury transactions to purchase ETH with treasury stablecoins.

Validator Node Operator Nicolaus will setup validator nodes on Allnodes and monitor performance.

Validator Withdrawal Keyholder(s) Upon defining a withdrawal address for ETH rewards, Adam and Parker will be owners of the withdrawal keys.

Sharding keys to multiple owners will decentralize ownership, management, and risk.

Proposed Actions

1. Acquiring ETH Convert 633,600 DAI to 320 ETH.

• Immediately swap 63,360 DAI for 32 ETH.
• Continue to buy 32 ETH in chunks by monitoring downward market trends.
• If ETH prices result in a total cost that exceeds available DAI, move to a 50/50 conversion of USDC and PAX to buy remaining ETH.
• Purchase up to 320 ETH to operate a total of 10 validator nodes.

2. Spinning Up Validators Following the funding of the Decent Foundation, configure the first validator on Allnodes.

• Validators will be funded and owned by the Decent Foundation.
• Monitor its rewards and performance for 4 weeks.
• After 4 weeks, use available tranches of 32 ETH to configure additional validators, up to 10.

Revenue

Staking Rewards

The following chart demonstrates the staking rewards earned across the full possible range of rates provided by Ethereum.

Estimated 1 Year Profit

Risks

The process of Decent setting up and operating Ethereum validator nodes comes with inherent and potential risks that may impact its success in achieving the stated goals in this proposal. It is important to be aware of those risks, carefully assess them, choose to accept them, and develop a plan to address them. By being prepared to handle the associated risks, Decent may mitigate those risks.

Inherent Risks

Treasury Risk: Staking requires locking up a significant amount of ETH, which would expose the DAO treasury to market volatility and risk.

Centralization: The individual in the DAO that sets up the validators will be the sole owner of the keys.

Cloud-Hosted Operating Risks

Slashing Risk: In the event of another company conducting malpractice or negligent node operations, there would be significant slashing penalties incurred beyond our control.

Software & Server Risk: Trusting node operations to another company removes elements of control over software and hardware setup & upgrades, exposing our financial assets to more risk, such as supermajority client risk.

Network Risks

Downtime Penalties: Validators may be penalized for downtime, which will result in lost rewards. Downtime may be a result of network errors, client upgrades, hardware malfunctions, connection stability issues, and/or improper maintenance and surveillance Penalties are typically equivalent to the forfeited potential ETH rewards over the down period. In addition, there is an additional opportunity cost for not receiving the potential rewards that occurred during downtime.

Slashing Risk: When a validator node violates the rules of the Ethereum network, it loses a portion of its staked ETH as a penalty. Slashing penalties are a result of a validator being suspected of malicious behavior intending to harm the network. This is most often unintentional behavior due to negligent node operations, such as implementing an improper redundancy setup that results in the same validator keys running on two servers at the same time. The severity of the penalty (# of ETH) varies depending on the severity of the violation. A slashing event will result in ejection from the network.

Supermajority Client Risk: Geth is now operating 83.7% of the network at the execution layer. At 66%, Geth can officially validate a new chain if there is a bug causing it to fork.

ETH Price Decline: If the price of ETH drops significantly, the rewards earned from staking may not be sufficient to cover the costs of operating the validator node.

Follow-Up

By separating the acquisition of ETH and the set-up of validator nodes into two separate activities, with the latter dependent on active progress of the former, the price of ETH will be regularly monitored for price action and the treasury assets will be re-assessed every season until the target 320 ETH has been purchased and 10 validator nodes are setup.

Further, in a rapidly evolving market and solutions landscape, a more viable alternative SAAS validator solution to Allnodes may surface, creating consideration for execution of validators on a different platform. The ETH Staking landscape will be re-evaluated every month throughout the life of this proposal to ensure Decent meets its business objectives and sustains the safest, most competitive option possible. Movement of existing SAAS validators to a new platform will be placed for a vote.