EIP-7514 is the latest improvement proposal released by Ethereum on September 7. It will be launched in the Dencun upgrade in late 2023, along with five other proposals including EIP-4844.

The main purpose of this proposal is to slow down the problem of excessive growth in the number of ETH pledges. It changes the previously dynamically calculated Epoch Churn Limit and sets a constant Max Epoch Churn Limit of 8 to help slow down the ETH pledge rate that continues to rise.

EIP-7514 can help the Ethereum network reduce the security risks associated with the rapid increase in the number of ETH pledges, while providing the community with more time to improve the validator staking reward scheme.

Why is EIP-7514 needed?

Currently, one of the serious problems facing Ethereum is that the pledge rate of ETH has grown too fast. According to Ethereum statistics, if the deposit queue remains 100% full, the ETH staking rate will reach 50% in May 2024, 75% in September, and finally 100% in December 2024.

Although the reduction in circulation will cause the price of ETH to rise. But as the ETH pledge rate increases, the Ethereum consensus layer will be under increasing pressure. More validators means that the number of malicious validators will also increase, thereby increasing the security maintenance cost of the network.

There are two main reasons for the rapid growth of ETH pledge rate:

• After the Shapella upgrade, pledge withdrawal is allowed, resulting in a rapid increase in the amount of ETH pledged
• The relatively high staking rewards of ETH attracted a large number of validators to pledge ETH

In order to encourage validators to maintain the security of the Ethereum network, the staking rewards for validators set in the early days of Ethereum were relatively high ( About 9% at the end of 2021). Although as the amount of ETH staked and the number of validators increases, the staking reward gradually decreases (currently about 3.9%). However, according to calculations, when the ETH pledge rate reaches 100%, the validator’s pledge reward still accounts for 1.6% of its ETH pledge amount. This is still attractive to validators.

Therefore, Ethereum is considering adjusting the pledge rewards to find a suitable reward ratio to fundamentally solve the problem of excessive pledges caused by the influx of a large number of validators. The setting of this ratio is a long-term task that requires time to be discussed in detail.

So EIP-7514 is essentially a transitional proposal. It sets a fixed Max Epoch Churn Limit to control the staking growth rate of ETH, thereby providing the community with more time for discussions on staking reward adjustments.

What is Epoch Churn Limit?

The most important change in EIP-7514 is to set the maximum Epoch Churn Limit to a fixed value: 8.

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

Epoch Churn Limit limits the amount of ETH that can be pledged on Ethereum within 1 epoch (about 6.4 minutes), as well as the number of pledged ETH withdrawals that can be initiated. It is based on dynamic calculations. The value depends on the number of active validators on the Ethereum network. Simply put, the more validators active on Ethereum, the more new validators can be activated and validators allowed to exit each epoch.

Epoch Churn Limit = max(4, Active_Validators/65536)

That is, for every additional 65,536 active validators on the Ethereum network, each epoch can be activated The number of new validators will increase by one, and the number of validator exits that can be processed per epoch will also increase by one.

Although the Epoch Churn Limit limits the number of validator withdrawals and activations to be the same, in fact according to Ethereum’s withdrawal rules, validators need to wait between 27 hours and 36 days to withdraw from staking. Therefore the joining and exiting of validators is not balanced. If the Epoch Churn Limit is not controlled, the number of ETH pledges will increase faster and faster over time, eventually reaching 100% of the ETH pledge rate in a short period of time.

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

According to Ethereum, in 2023 Q4 (the expected activation time of Dencun), the value of Epoch Churn Limit will rise to 16, and the daily increase in ETH pledge will further increase to 115,200 ETH, an increase of more than 30 %. Affected by this, the pledge rate of ETH will exceed 50% on July 23, 2024. Then reach 100% by the end of 2025.

With the help of EIP-7514, the Epoch Churn Limit value will be stable at 8 when Dencun is activated (1,800 validators can be activated on Ethereum every day, and the daily growing ETH pledge amount will be stable at 57,600 ). According to calculations, this will delay the time when the ETH pledge rate reaches 50% by nearly 8 months, and the time when the ETH pledge rate reaches 100% will be delayed by at least two years.