A Game Theoretic Analysis of Validator Strategies in Ethereum 2.0

TL;DR

This paper models Ethereum 2.0's validator incentive mechanism using Bayesian games, demonstrating its incentive compatibility and the existence of stable strategic equilibria that promote validator cooperation.

Contribution

It introduces a game-theoretic framework to analyze Ethereum 2.0's incentive mechanism, proving the existence of Bayesian Nash equilibrium and dominant strategies among validators.

Findings

The incentive mechanism is incentive-compatible.

Stable equilibria promote validator cooperation.

Provides a foundation for further incentive analysis.

Abstract

Ethereum 2.0 is the second-largest cryptocurrency by market capitalization and a widely used smart contract platform. Therefore, examining the reliability of Ethereum 2.0's incentive mechanism is crucial, particularly its effectiveness in encouraging validators to adhere to the Ethereum 2.0's protocol. This paper studies the incentive mechanism of Ethereum 2.0 and evaluates its robustness by analyzing the interaction between block proposers and attesters in a single slot. To this end, we use Bayesian games to model the strategies of block proposers and attesters and calculate their expected utilities. Our results demonstrate that the Ethereum 2.0 incentive mechanism is incentive-compatible and promotes cooperation among validators. We prove that a Bayesian Nash equilibrium and an ex ante dominant strategy exist between the block proposer and attesters in a single slot. Our research provides a solid foundation for further analysis of Ethereum 2.0's incentive mechanism and insights for individuals considering participation as a validator in Ethereum 2.0.