Blockchain is a decentralized digital ledger that records transactions across multiple nodes to ensure security, transparency, and immutability. It is the foundational technology behind cryptocurrencies such as Bitcoin [15] and Ethereum [1], enabling peer-to-peer (P2P) transactions without the need for a trusted third party. The structure of the blockchain as a series of blocks chained together through cryptographic hashes helps prevent alterations to the data once it has been confirmed on-chain. A permissionless blockchain allows any participant to join and engage without requiring authorization. In this context, the Ethereum blockchain [16] emerges as a pioneering platform, supporting the execution of smart contracts and empowering developers to create various decentralized applications.

\ DeFi [17] represents an innovative application of blockchain technology, focusing on building open financial systems. DeFi refers to a set of blockchain-based financial services and products that operate without intermediaries, using smart contracts to build an open environment. DeFi innovations ranging from collateralized lending to DEXs are reshaping the financial system. The TVL in DeFi hit a record high of 178b USD in Nov 2021, with the Ethereum blockchain driving these DeFi activities.

3.2 Ethereum PoS

The PoS consensus mechanism, first proposed in online forums and later examined by academia [18, 6, 19, 20, 21], has emerged as an energy-efficient alternative to PoW.

\ Beacon Chain. On Dec 1, 2020, Ethereum marked a significant milestone by introducing its PoS-based Beacon Chain that runs in parallel with Ethereum’s PoW Mainnet. In the Beacon Chain, “staking” is introduced through a deposit mechanism, allowing participants to become validators by locking up 32 ETH in a designated smart contract. Staking enables validators to contribute to the integrity of the network by participating in the consensus process, including proposing and validating blocks. This not only helps maintain the security of the blockchain, but also allows stakeholders to earn rewards proportional to their contributions, incentivizing more participants to engage in the network’s operation.

\ The Merge. On Sep 15, 2022, the Merge enables Beacon Chain to evolve as the consensus mechanism for the entire Ethereum network [22]. Ethereum now runs on the execution layer and the consensus layer. The execution layer is responsible for executing transactions, defining how the state of the Ethereum network changes over time. The role of the consensus layer entails establishing agreement among validators regarding the state of the execution layer. The Ethereum staking system offers various incentives to validators. Rewards from the consensus layer include block proposal, attestation, and sync committee rewards [2]. The execution layer introduces additional rewards, including priority tips and Maximal Extractable Value tips [23, 24]. Penalties also apply for dishonest behaviors.

\ The Shapella Upgrade. On Apr 12, 2023, Ethereum underwent the “Shapella upgrade”. The Shapella upgrade combines the “Shanghai upgrade” and the “Capella upgrade”, which took place on the consensus and execution layer simultaneously [25]. The Shapella upgrade primarily introduces the capability to unstake ETH secured within the network. This newfound ability enhances the operational dynamics for both individual stakers and validators. Validators can initiate withdrawals of their staked ETH, either partially or in full, enabling them to reclaim their capital and potentially redeploy it elsewhere. Similarly, if a user has staked ETH on Lido (see Section 3.4), they now have the flexibility to partially or fully unstake their assets, allowing for greater liquidity and control over their investments.

:::info Authors:

(1) Xihan Xiong, Imperial College London, UK;

(2) Zhipeng Wang, Imperial College London, UK;

(3) Xi Chen, University of Sussex, UK;

(4) William Knottenbelt, Imperial College London, UK;

(5) Michael Huth, Imperial College London, UK.

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:::info This paper is available on arxiv under CC BY 4.0 DEED license.

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