 Good day to you all. Buenos dias. My name is Ken Smith. I'll be talking about does it make sense to aggregate an average fee recipient rewards Commonly referred to as mev using a smoothing pool and Very glad to talk about a number of things. I'm with A firm of my own called next block solutions But I'm also a rocket scientist with the rocket pull protocol and most importantly a member of the node operators association So one of the things you can do is you could download a copy of this report that was published early summer There's a QR code here in the corner that you can grab But this this presentation will cover the highlights of that report or at least give you a good orientation to read it But I do encourage you to go there for more additional information that I can't cover in in 24 minutes and nine seconds here So to begin with let's let's spend just a short second talking about the tax on taxonomy of mev, right? You've heard a lot of talks about it. One of the first things you might be asking is Why would it make sense to aggregate rewards in a smoothing pool? This is something that kind of comes from the mining industry, right? Where the chances of you Actually solving a cryptographic cash and being rewarded is so rare that it makes sense to go in collectively with other individuals to have a constant income stream this here is a graph that shows the The probability over five years of receiving a block proposal, right? So if you have a single validator and sometimes I might refer to those as mini-pools and rocket-pull terminology but validators over five years given four thousand two hundred four thousand 25 validators were a little bit more than that now on the on the blockchain You will receive on average about 30 proposals over that five-year period now again That's just an average right you can see in the the probability histogram You might be unlucky and might only receive 12 proposals over that five years You might also receive 50 or so right and it scales linearly if you have two validators You can see here that the average is going to be 60 We think that there's no advantage to having more validators in there if each Each proposal was rewarded uniformly with the same amount of beacon rewards But obviously in addition to get a beacon rewards, you'll also get a chance at MEV Right, so let's just take a little bit at looking at MEV, right? You know the definition Right, I think one of the things we lose a little bit though is that it's viewed somewhat as a theoretical limit It's the maximum extractable value and I would argue and I think a lot of the data supports that we're not actually Extracting that full amount right so the flashbots team is used this term I don't think it's quite as catchy called rev Which is the actual amount that we're able to extract from the block right and there's some amount of of Earnings right that is not captured right. It's just left on the blockchain for the the next block I'm just going to call that eulage until somebody comes up with a better name, right? There's some really great metrics coming coming out now Post merge about if we look at this rev how much of it is actually going to the searcher, right? How much of it is going to the block builder, right? What part of it may go to the relayer right now the relayers seem to be providing that as a as a no-fee service, right? But there's a potential they might capture some revenue from there and most of it from the metrics We're seeing right now is going to the block proposer, right? That's the validator and so I've been I've been calling this term in my report here the Proposer payment value. It's the amount paid to the the validator to put those transactions into the block Okay, one of the things that we did is performed a Monte Carlo simulation looking at it pre-merge We looked over a period of 60 days. We looked at the amount of mev that was extracted by miners Now this was done in the kind of May-June time period, but mev seems to be about Pretty much stable in that time period It's not maybe declining slightly but pretty much in there and it is this long-tailed distribution, okay? Most of the mev this this line right here. This is the median value, right? So 50% of the blocks received a value. That's less than less than point zero five ETH in their block, right? 50% of the blocks had ETH payments and mev payments or proposer payment values that are greater than that The average is actually quite a bit higher than the median and the reason for that is of this long-tailed distribution In fact, it's it's so much that you know and looking at some of these metrics if we just look at the top point one percent, right? Let me get it here thirty percent of all the ETH values is in that top point one percent of the blocks there, right? And it's because it's just so long-tailed here I mean that ends right here at one ETH, but it actually continues on right? We heard earlier that you know some of the blocks would be you know near three digits ETH, right? Okay, adds tremendous tremendous value to it Right so because of that long-tail right even the top one percent have 45 percent of the proposer payment value in there, right? It it creates these these very rich ETH blocks right that we've been calling lottery blocks, right? And if you win a lottery block it can be it could be very rewarding in terms of an income stream, right? So this is why it makes sense to start aggregating them into a smoothing pool So one of the things we did pre-merge is we started to looking at okay I think this was originally proposed by flashbots. There was a dev on the rocket pool team that actually Came up with an ideal and a mechanism to implement it joke joke hapless and so what we did is we we I created a Python program and you can get it from the github that went ahead and it and it went through a morning carler simulation And so just briefly what it did is it said okay, let's figure out some time period and that's important, right? Because the way that this works is that if you validate for an indefinite period of time Right you all approach the average, okay, but we're not going to validate for an indefinite period of time There's some investment, right? Maybe you start staking you earn income, but maybe it's a five year Maybe it's a 10 year or 20 year there's some limitation of time perhaps It's even much shorter with proposer builder separation, right? Maybe that will come in three years or four years right or as we heard in the other talk Maybe there are other technologies that could prevent Prevent a lot of this matter from occurring. So there's some finite determination The software goes ahead and it performs a try it grabs a validator It makes a a guesstimate about the number of proposals that it will get over that five year period for most most of my graphs It then for each of those proposals randomly assigns a A an amount of mev based upon that 60-day historical period Okay, because mev seems to be somewhat random We don't know when the NFTs are going to drop when the arbitrage is going to happen Okay, it then goes ahead and does that for a validator or a set of validators that you have It then also compares another set like type, you know Set A set B set B is where that validator instead of running by itself Something I call a solitarius mode is now running as part of the smoothing pool Okay, and the size that I chose for the smoothing pool initially was about 3,000 validators that are working collectively sharing sharing their proposed or payment values and then it it it did that for the entire Validating period and it simply compared it said, okay Would you in this case in this try did the solitarius mini pull earn more Income and in proposed or payment value than if it was in a smoothing pool, right? And so we've we've got some results that we could share about this it records it And then it repeats it a whole bunch of times and you can set that number for anything But you get enough power at about a thousand tries running through this in here And then finally it produces a lot of a lot of new graphs, so let's go ahead Let's take a look at those graphs, okay So let me walk through it with you a couple of times Let's just start with one we have one validator who over the course of five years Produces on average about 60 blocks right and you can see here that it runs for a period of time It gets it gets a block and it receives a small amount of mev Here it got it proposed again and received a larger amount and you can see as it steps up here It's not receiving any blocks. It was never selected to be a block proposer Here it's a block proposal and it went up and so it just goes up every period, right? And I had the periods kind of slice and in 28 day periods And at the end of it you can see over that five-year period this run of the single validator earned about 2.5 Ethan math, okay We could run it again and we could say given that same performance What about if it was in a group of two thousand nine hundred and ninety nine other validators and It's so therefore the mini pool had three thousand validators And we could see here that if I could if I put both of those slides together that it outperformed Right, it was much better to get a small constant share of a larger pool over time Now this was just one run, right? Okay, maybe it just so happened I picked one that it outperformed it we need to repeat that a little bit more right So let's let's look at that a little bit more here right so again I said well try it ten times right and you could see here back to the solitarius Validator that maybe it only earned two ETH maybe over here in this trial it earned about six ETH, right? Okay, there is greater variance because of just the the long tail randomness of the math But if it's part of a smoothing pool you could see here even at ten tries of a smoothing pool The variance is much less because now we're averaging a share over three thousand validators, right? And when you put them together on the same chart in the same axis these here You can see that at least in this this trial of ten runs that nine nine times out of ten Being in a smoothing pool you earned more income over that five-year period than if you had just ran independently Only in one time you had a very lucky solitarius mini-pool that had actually outperformed the smoothing pool, right? So We this is just another chart that's looking at it where I normalized if you were by yourself and you could see that most of the runs you Earned, you know in this case about three ETH more over that five-year period Then if you had ran Solitariously, that's the red line. Okay. Well again Ten times is not a lot You need to start increasing that very large to get your orders of power in terms of your ability to see resolution So here I ran it again now all these lines start to overlap and it looks like from here again The blue lines here are the smoothing pool and you might say wow look at all these here that are up here earning hundreds of ETH Over the smoothing pool right, but it's a it's a little bit of a of an optical illusion, right? Because the majority of the lines are here in this very dark purple at the bottom, right? In fact, how many of those are there? We could sit we can start looking at it, right and I'll just I'll just point to this one Part here if you had one mini pool of your own and you were in it and joined a smoothing pool of only a hundred other mini pools 78% of the time in this run of a thousand tries 78% of the time the smoothing pool outperformed a Solitarius mini pool, right? We could show the same same chart here just shown on a line here And you could see that it will underperform in kind of a unique case when when you are the smoothing pool If you join a smoothing pool before you reach the 50% mode, right? So don't join a smoothing pool if you have one validator Don't join until there's at least two or three validators in the pool, right? Okay, but as soon as you become the small fish in the pool, right? If you join a pool of let's say three thousand mini pools and you only have 10 or 15 15 validators, right? You can join you could expect about 80% of the time that that's that smoothing pool will outperform your solitarius mini pool So it does it does provide that You know the kind of takeaway here is that a fractional share is going to outperform most of the time, okay? now Another rocket scientist in rocket pool Val Drogff I think looked at the report when it was when it was in the early phases and he said Ken that was that was pretty Interesting stuff. I love the code, but he says I think I could show it in one graph, okay? And so he put together this graph I got to give him the full credit and what it shows here is it shows the probability of you earning an amount of ETH Given whether or not and we'll just look here at the blue line, which is one Validator versus joining the purple line of 3000 validators And so this blue line you can see that there's some probability, right? That you might even get up to ten ETH over the five years, right? But most of your probability is that you are going to get less than five ETH, okay? Versus if you're in a smoothing pool, you're in the purple line, right? You're almost assured not to get these low values Most of your probability is getting some value close to five or six ETH over that period of time and then again It becomes very unlikely that you're gonna win the lottery, right? Because the pool won the lottery and you're just getting a share It's also shown down here lower below here, which is that if you're in the pool, right? You are you're nearly guaranteed to get at least one ETH, two ETH, three, four, five ETH, five ETH, six ETH And then it starts dropping down to almost a negative probability, right? Versus the blue line you can see that yes, you know the chances are I'm going to get much less than five But I give up some chance of winning the lottery, right? So it does provide You know the takeaway here is that if you participate in a smoothing pool, right? You are more likely to receive large larger monthly ETH rewards Okay, especially if it pays out on a on a monthly process then running your own mini pools by yourself Okay, now what why is this important kind of post merge? Well, let me let me share a couple things post merge I mentioned that rocket pool already has a smoothing pool for its node operators They can opt in to it, right? You're not required to and there's a great a great tool again You can scan the QR code a great tool called rocket scan by another rocket scientist Peteris that actually shows the rocket pool validators and I did this last night when I was putting these slides together and you can see what Proposers or what blocks they proposed and if they have a little looks like a smoothie, right? They're in the smoothing pool, okay? And You can see here this person got pretty close to a lottery block, right? But they're in the smoothing pool So we all benefited from it, but you can see most of them here are these just, you know smaller Mev amounts and you can see what mev relay You know one that block auction in there, right? There's also another great dashboard here by by gen X another rocket pool member Who put together a dune dashboard that was showing since the smoothing pool launch Which was a few days I think after the merge happened so about 30 days ago or so That you know it is trending very close to our model predictions, right? We have You know a median of about 0.6 if so if you were solitary so that would that is what you would expect in terms of your rewards and then If you were in the smoothing pool, you can see the performance enhancement from it, right? In the smoothing pool you get the average if you run by yourself you get the media It's basically kind of how it works and they're at they're adding about 1.5% if you're in the smoothing pool in terms of your APR To have a validator in it in the smoothing pool because of mev They're tracking it very much like our model predictions that we can see most of the mev are these very small amounts that occur But you may not see it here, but I'll just kind of point There's one around four one around five and the biggest mev block we've got so far in the last 30 days It's about 8.4 e that was right after the right after the merge there was a very a fortunate block proposal that came in and got vetted But it models very close to our our predictions, so that's good to see now We only have 30 days of data it needs to go There's a great command here in the rocket pool discord the Invis bot it actually shows the number of rocket pool nodes That have opted in it seems to be very popular with about 70% of the node operators in the network joining it We've been told or at least seen chance that one of the reasons Some of the larger nodes are not joining it is they do not require yet That mev boost be running on these things But that is the plan to make it that if you're in this smoothing pool, it's a it's a it's a mev boost smoothing pool But already it's performing quite well, and this is it pays out every 30 days This is only in the last 14 days. We're about halfway through the reward cycle It's already generated 70 ETH among these participating 4,000 mini pools that are in there Right now obviously this is this is a model that kind of showed how it works It's an example from the rocket pool Protocol about how a smoothing pool can work, but I actually think it it's it's a value to other staking services, right? I can certainly see a need for solo validators to perhaps aggregate in a smoothing pool of their own I could see other protocols begin to create their own smoothing pools One of the interesting things as I know that the ethereum foundation and the research site is looking as one of the possible solutions to propose or build or separations is the Establishment of a protocol including smoothing pool that redirects those mev mev rewards And so this could be an excellent model for them to look at in terms of getting data And that was one of the reasons I wanted to present it here at dev con because I think it does does offer some example on stuff Last but not least so I have time for questions I would like to thank the note operators associations with their financial support that I was able to attend here and present this paper and Shout out to all those in the rocket pool trading discord They gave me a lot of support to actually submit and present this and write the paper So with that I'll conclude my my prepared talk and open it to questions Hi there. Thank you. Great talk Simple question. What's the right number of validators to have in a smoothing pool? At what point at what point does the probability of rewards begin to approximate your 3,000 validators? Would you get the same effect at 30? 300. Yeah, I think I think the numbers you did on a slide Maybe I can pull it back up here. Well, maybe not but if you look at the slide that shows it You know even at a hundred a mini pool of about a hundred valve a hundred mini pools, right? As I go back for it you you start to get it right even even at 3,000 and so forth The numbers maybe this is a better slide over here. I mean look you're at 78 80 percent Right, which is pretty close to it. It does not take that much to start getting those rewards Obviously the more you have in the pool the less variance you get And it becomes a very predictable stream of income I'll wait for the mic to get back there Well, it does all out over here that you know, certainly if you join where you're a small part and You know, you can see the numbers they start moving it moving more and you know again It's Monte Carlo simulations So if you see little variances as to why this is lighter shade and not it's just you run it again I'm another thousand you get a you know a slightly different picture, but it all at all looks this in my report There's a really nice one where I let it run, you know over the weekend and you know Generated a number of money Carlo tries Just is there anything special about rocket pool that makes it only work for them The smoothing pool or could potentially Other home stakers join the rocket pool smoothing pool or could they have their own? You need oracles for it to check participation of the validators Yeah, yeah, no the the math in the The mechanism works Regardless of the protocol, right? So just if you get enough validators together working collectively to share the rewards The math all follows right now. I understand it's actually come up a couple of times I understand from the rocket pool community if they would open the rocket pool smoothing pool right now They have it only to rocket pool Validators that are with their protocol, but I know it's been talked about you'll have to ask some of the dev team in The front row about what their current thoughts are but it doesn't surprise me if if if others start creating similar approaches You mentioned that joining is voluntary and I was wondering of like the people that know about it How many people actually joined would you say? Yeah, I think my slide said that there was about 70% of the Existing node operator so a little bit of terminology here a node operator is an individual who has a a single piece of hardware Maybe I guess it would be a single piece of hardware and about them 70% of them have joined right so Out of the 1600 node operators and rocket pool Just just a little bit more than 1100 have joined We do think that from some of the the other node operators I think they are waiting for med extraction to be required like right now I believe it's about 90% of those in the smoothing pool have med boost on but 10% don't and so you can kind of think of it if You know some somewhat as a strain on it right because they're not actually going after any mev But they are getting a share of the rewards The plan in rocket pool is to make it mandatory as part of joining the pool But because of the merge and the new technology on mev and the relays Right now it's just truly an opt-in But most of the node operators are obviously profit-seeking and they are turning on the the mev boost That excellent question by the way All right. Well, I don't see any more questions. So I thank you very much for allowing me to present the present here at DevCon