What is EIP-7514

EIP-7514 is the latest Ethereum Improvement Proposal released on September 7th. It will be activated alongside five other proposals, including EIP-4844, during the Dencun upgrade at the end of 2023.

The primary objective of this proposal is to address the issue of rapid growth in ETH staking quantities. It modifies the previously dynamic Epoch Churn Limit and sets it as a max constant value of 8, aiming to slow down the continuous increase in the ETH staking rate.

EIP-7514 can help the Ethereum network mitigate security risks associated with the rapid growth of ETH staking quantities while allowing the community more time to improve the validator staking reward ratio.

Why Need EIP-7514?

Currently, one of the significant challenges facing Ethereum is the rapid growth in the staking rate of ETH. According to Ethereum's statistics, if the deposit queue remains 100% full, the staking rate of ETH will reach 50% in May 2024, 75% in September 2024, and ultimately 100% in December 2024.

While a decrease in circulation can drive up the price of ETH, the increasing staking rate of ETH also puts significant pressure on the Ethereum consensus layer. More validators mean a potential increase in the number of malicious validators, thereby increasing the network's security maintenance costs.

The two main reasons leading to the rapid growth in the staking rate of ETH are:

• After the Shapella upgrade, Ethereum allows stakers to withdraw their staked ETH.
• The relatively high staking rewards for ETH attract many validators to stake their ETH.

To incentivize validators to maintain the security of the Ethereum network, Ethereum initially set relatively high staking rewards for validators (around 9% by the end of 2021). Although staking rewards have gradually decreased with the increase in ETH staking volume and the number of validators (currently around 3.9%), calculations show that when the ETH staking rate reaches 100%, validator staking rewards will still account for 1.6% of their staked ETH. This remains somewhat attractive for validators.

Therefore, Ethereum is considering adjusting staking rewards to find an appropriate reward ratio that fundamentally addresses the issue of excessive staking caused by the influx of many validators. Setting this ratio is a long-term process that requires detailed discussions over time.

As a result, EIP-7514 was created as a transitional proposal. It sets a fixed Max Epoch Churn Limit to control the rate of ETH staking growth, providing the community with more time for discussions and adjustments to staking rewards.

What is Epoch Churn Limit?

The most significant change introduced by EIP-7514 is the setting of a fixed value for Epoch Churn Limit, which is at 8.

The Epoch Churn Limit is a parameter used to control the activation and exit of Ethereum validators within a specific time frame. It is used to stabilize the number of Ethereum validators and maintain the stability of the Ethereum network.

The Epoch Churn Limit restricts the amount of ETH that can be staked on Ethereum and the amount of staked ETH that can be initiated for withdrawal within 1 epoch (approximately 6.4 minutes). It is calculated dynamically and depends on the number of active validators on the Ethereum network. In simple terms, the more active validators there are on Ethereum, the more new validators can be activated and the number of validators allowed to exit within each epoch.

Epoch Churn Limit = max(4, Active_Validators/65,536)

In this formula, for every increase of 65,536 active validators on the Ethereum network, the number of new validators that can be activated within each epoch increases by 1, and the number of validators allowed to exit within each epoch also increases by 1.

While the Epoch Churn Limit restricts both the same number of validators exiting and the number of new validators activated, in practice, due to Ethereum's withdrawal rules, validators face waiting periods ranging from 27 hours to 36 days before they can withdraw their staked ETH. As a result, the entry and exit of validators are not in balance. Without controlling the Epoch Churn Limit, the rate of ETH staking would increase rapidly over time, eventually reaching a 100% staking rate within a short period.

According to data from Dune, since the Ethereum Shapella upgrade on April 13, 2023, the number of active validators on Ethereum has been consistently increasing. As a result, the value of the Epoch Churn Limit has risen from 8 to 12. This means that there can be 2,700 validators activated on Ethereum daily currently, equivalent to an increase of 86,400 ETH in staking every day.

According to Ethereum, by Q4 2023 (the expected activation time of Dencun), the value of the Epoch Churn Limit will rise to 16. The daily increase in staked ETH will further rise to 115,200 ETH, representing an increase of over 30%. Consequently, the staking rate of ETH is projected to exceed 50% by July 23, 2024, and reach 100% by the end of 2025.

However, with the assistance of EIP-7514, the value of the Epoch Churn Limit during Dencun activation will remain stable at 8 (allowing 1,800 validators to be activated on Ethereum daily, with a daily increase in staked ETH staying at 57,600). According to calculations, this can delay the time for the ETH staking rate to reach 50% by nearly 8 months and postpone the time to reach 100% ETH staking rate by at least two years.