Ethereum's Pectra Upgrade: What's next for ETH and staking

• Pectra, Ethereum’s next major upgrade, is planned for May 7, 2025, and will introduce improvements for stakers, node operators, and staking networks like Liquid Collective.
• EIP-7251: Increase the MAX_EFFECTIVE_BALANCE will increase the amount of ETH that can be staked per validator from 32 ETH to 2,048 ETH, streamlining reward compounding and reducing operational costs.
• EIP-7002: Execution layer triggerable withdrawals will allow staking withdrawals to be called from a validator’s withdrawal credentials, reducing the risks of node operator services.
• EIP-6110: Supply validator deposits on chain will reduce the delay between submitting a staking deposit transaction and it being finalized, from the current 12 hours to ∼13 minutes.
• A number of Ethereum community resources provide regular updates on Pectra’s development, so anyone can stay up-to-date on the upgrade’s progression to mainnet.

Overview

Ethereum’s Pectra upgrade (which combines the Prague execution layer and Electra consensus layer updates) is set to launch on May 7, 2025.

Following March 2024’s Dencun upgrade, which focused on reducing Ethereum’s Layer-2 fees and increasing network scalability, Pectra represents a significant network-wide update for Ethereum—with 11 Ethereum Improvement Proposals (EIPs) included, Pectra represents the largest update since the Merge in 2022, which transitioned Ethereum from proof of work to proof of stake consensus.

Pectra brings a suite of improvements to Ethereum, focusing on account abstraction, validator management, and network efficiency. Highlights include a dramatically-increased validator staking limit, more flexible staking withdrawals, and streamlined smart contract deployment—each aimed at bolstering Etherum’s performance and security. A number of these EIPs are likely to significantly impact the efficiency of ETH staking networks like Liquid Collective.

Key Pectra EIPs for staking

EIP-7251: Increase the MAX_EFFECTIVE_BALANCE

EIP-7251 marks a significant change for ETH staking, increasing the maximum effective balance for a validator from 32 ETH to 2048 ETH while maintaining the 32 ETH minimum. This change will improve Ethereum’s scalability and operational efficiency while supporting the network’s future growth trajectory.

The overall goal of increasing the maximum effective balance is to reduce the total number of validators on Ethereum. Over time, this is expected to greatly improve the efficiency of Ethereum’s consensus layer, decreasing the volume of peer-to-peer messages across nodes and reducing the memory footprint for the BeaconState, along with other benefits.

To avoid unintended adverse effects, EIP-7251 takes into account other ETH staking parameters that have been built around the existing 32-ETH maximum. It will transition the churn limit for validator activations and exits to be based on the active weight of stake (i.e., amount of ETH) that can be activated or withdrawn from ETH staking per epoch, instead of the current fixed number of validators. It will also adjust the calculation for a minimum slashing penalty, to avoid higher-balance validators from facing outsized penalties.

"One of the biggest costs for large-scale operators is cloud compute. By all means, EIP-7251 will hugely reduce this cost."

—David Turnbull, Senior SRE at Alluvial

Large-scale node operators and liquid staking networks like Liquid Collective will be significantly impacted by this EIP. Operational costs can be reduced by running fewer validator nodes, with the amount of overhead required for technical development, upgrades, and infrastructure maintenance also supporting overall resilience and security.

As David Turnbull, Senior SRE at Alluvial, explained in our Obol x Liquid Collective report on Ethereum’s correlation risks, “EIP-7251 will have a big impact on the number of validator keys that need to be funded. This brings efficiencies in administrative labor, upgrades, monitoring, and more. But one of the biggest costs for large-scale operators is cloud compute. By all means, EIP-7251 will hugely reduce this cost. For more classic infrastructure configurations, which include operating cloud-based servers, and benefitting from the elasticity of the cloud, not having to activate new validators will mean their savings will be huge.”

What EIP-7251 means for ETH + staking

• Reduced operational costs for staking providers: The increased balance limit allows for automatic compounding, eliminating the need for repeated deposits and saving gas fees and operational costs. Large staking providers can consolidate their stake into fewer validators, enhancing efficiency and reducing associated costs like cloud compute fees.
• Potential increased APR through efficient auto-compounding: By automatically compounding consensus layer network rewards received—without requiring a new validator to be deployed—EIP-7251 minimizes downtime associated with manual staking processes, potentially leading to consistently higher reward rates for traditional staking solutions and solo stakers. Execution layer rewards, including any rewards from MEV, will still need to be claimed and staked to compound. More granularly, for consideration in staking network design and large-scale stakers, Ethereum’s hysteresis parameters should be considered; a validator's balance needs to exceed the next effective balance increment by a threshold before the effective balance increases, which at scale could potentially lead to a slightly lower initial APR at lower effective balances compared to immediate new validator deployment.
• Lower barriers for small-scale stakers: Smaller operators benefit from the ability to compound rewards immediately without waiting to accumulate multiples of 32 ETH, allowing them to earn on their additional ETH in real-time.
• Enhanced proposer rewards for large-scale stakers: Large-scale providers now have the option to consolidate stake into fewer, higher-balance validators, which increases their likelihood of being chosen as block proposers. This improvement may offer more frequent proposer rewards.
• Accounts for slashing risks: Higher effective balances place more ETH at risk of slashing. However, EIP-7251 introduces a reduction in the initial slashing penalty by increasing the initial slashing penalty quotient from 32 ETH to 4,096 ETH, incentivizing adoption and reducing the risk of validator exit due to slashing incidents. Currently, any validator will be slashed the same via the initial slashing penalty EFFECTIVE-BALANCE/32 ETH (i.e. 1 ETH each). With EIP-7251, the initial slashing penalty will scale linearly with the effective balance, resulting in a maximum initial slashing penalty for a fully consolidated validator of 2,048 ETH/4,096 ETH = 0.5 ETH, which is still less than the initial slashing penalty charged today
• Lower network congestion and message overhead: Raising the effective balance limit reduces the total validator count, which alleviates network congestion. Fewer validators mean reduced peer-to-peer messages, fewer BLS signature aggregations per epoch, and a smaller BeaconState memory footprint, enhancing Ethereum’s capacity to accommodate future demand.
• Improved Ethereum network security: By reducing the number of network messages and validator nodes, EIP-7251 strengthens Ethereum’s resilience against overload, contributing to overall network stability and security.

Learn more about EIP-7251 in the proposal here.

Obol Labs x Liquid Collective: Ethereum’s Correlation Risks

Explore the critical aspects of correlation risk factors in ETH staking, including client, operator, and geographic diversity, along with mitigation strategies to enhance network security and resilience, in our report.

View Report

EIP-6110: Supply validator deposits on chain

EIP-6110 will reduce the activation time for new validators, improving the efficiency of ETH staking. It provides more direct access and streamlined validator management within Ethereum’s primary transactional layer.

The primary motivation behind EIP-6110 is to enhance the security of the staking deposit process and to simplify the design of client software, ultimately leading to a more robust deposit flow and an improved experience for validators.

By transitioning to include staking deposit transactions directly in blocks on the execution layer, EIP-6110 eliminates the need for validators in the consensus layer to vote on deposits, which significantly reduces the time it takes for a deposit transaction to be registered, finalized, and for a new validator to become active. The list of validator deposits included in a block will be created by parsing the deposit contract log events emitted by each deposit transaction within that block.

What EIP-6110 means for ETH + staking

• Faster onboarding of new validators: Significantly reducing the activation delay from hours to minutes means that newly-staked ETH can start earning ETH network rewards sooner, improving the efficiency of liquid staking networks.
• Increases the security of staking deposits: By transitioning this activation from a voting mechanism to an in-protocol automated process, EIP-6110 ensures that honest online nodes can’t be coerced into processing fraudulent deposits, even with a majority (over 2/3s) of malicious actors on the network.
• Improved network responsiveness to staking demand: Ethereum’s multi-step activation process means that in periods of high demand, the queue to activate a new validator can stretch from days to weeks. By reducing one bottleneck of this process, EIP-6110 may reduce the wait time overall in periods of high demand.
• Simplified client software for a robust staking experience: By eliminating a dependency on polling data from JSON-RPC APIs, a process that can be unreliable, and removing the need for maintaining and distributing snapshots of the deposit contract, this change simplifies the consensus layer client software run by validators. This will reduce API-related processing failures, along with reducing the engineering complexity for node operators.

You can learn more about how validator activations and exits work today in our post on Ethereum’s activation and exit queues.

Learn more about EIP-6110 in the proposal here.

EIP-7002: Execution layer triggerable withdrawals

EIP-7002 is a pivotal change for Ethereum’s withdrawal process. It eliminates the exit request’s exclusive reliance on a validator’s active key. Post-Pectra, both the active key and withdrawal credential key will have independent authority to initiate a validator exit. This proposal also enables withdrawal credential owners to perform partial withdrawals directly.

Each Ethereum validator has two keys:

• Validator Key: An active key that requires regular access for common transactions. Signing custody for his “hot” key is necessary for immediate operations.
• Withdrawal Credentials: Either a 0x00 BLS key or a 0x01 execution layer address, these “cold” credentials passively store the staked ETH and serve as the final destination for any validator withdrawals or reward distribution. The owner of the withdrawal credentials ultimately controls the staked ETH.

In many custodial setups, these two keys are held by different parties—the active key by the node operator, and the withdrawal credential signing key by the staker. If the withdrawal credential owner does not control the active key, they lack the ability to trigger exits, effectively placing their funds at the mercy of the active key holder.

To address this risk, node operators typically issue pre-signed and encrypted exit messages at validator setup, ensuring stakers can still exit without third-party dependency. However, these pre-signed messages can expire, leading to the release of EIP-7044 (“Perpetually Valid Signed Validator Exits”) to extend their validity.

At present, the ability to withdraw staked ETH from the Beacon Chain hinges on access to the active key. If this key is lost, stakers are forced to wait until their validator balance drops below 16 ETH due to inactivity before being automatically exited—a process that is subject to further balance reduction through inactivity leaks.

"We are currently confident that the additional withdrawal credentials feature does not impact the security of existing validators because the withdrawal credentials ultimately own the funds so allowing them to exit staking is natural with respect to ownership."

—EIP-7002

By allowing exits and partial withdrawals to be initiated by the withdrawal credentials, EIP-7002 will enhance the security and flexibility of liquid staking networks. It will unlock more trust-minimized withdrawal configurations, along with removing the security risks introduced by pre-signed exit messages. For solo stakers, EIP-7002 will also reduce the risk of inaccessible ETH if active keys are lost.

What EIP-7002 means for ETH + staking

• Reducing the risk of inaccessible ETH: With EIP-7002, even if a validator’s active key is lost, the withdrawal credentials can still be used to access staked funds. This drastically reduces the risk of funds becoming inaccessible due to key mismanagement.
• Lowering trust dependencies in multi-custodial staking setups: EIP-7002 alters the power dynamics in multi-custodial configurations, empowering withdrawal credential owners with independent exit capabilities. This reduces dependency on active key holders, who can no longer “hold hostage” the funds, enhancing user security and trust across custodial staking frameworks.
• Enhanced liquidity for staked ETH and flexible reward distribution: EIP-7002 enables partial withdrawals, offering staking providers more control over reward payouts and liquidity without waiting for the periodic consensus layer sweep to the execution layer. This is especially beneficial with the higher staking limit (2048 ETH) introduced by EIP-7251, allowing more reward compounding before a withdrawal. To manage request volume and provide economic protection against an adversarial actor blocking the exit operations, a dynamic smart contract fee will cap excess partial exit requests.Consensus-layer initiated full validator exits will remain fee-less. Note that as more validators consolidate to 0x02 credentials and exceed a 2048 ETH balance there will be fewer partial exits to process, reducing partial exit request volume.
• Expanded smart contract functionality and interoperability: EIP-7002 introduces the potential for initiating validator exits via external layers, such as EigenLayer, Symbiotic, or other restaking networks, using 0x01 withdrawal credentials. This fosters greater interoperability across DeFi and staking networks, opening up new possibilities for automated validator operations.

Learn more about EIP-7002 in the proposal here.

EIP-7702: Set EOA account code

EIP-7702, proposed by Ethereum founder Vitalik Buterin, adds a new transaction type that unlocks a “smart-contract-like” wallet on Ethereum. This will expand externally-owned accounts’ (EOAs’, or wallets’) functionality with programmable features.

More commonly called ‘wallets,’ externally owned accounts (EOAs) are accounts controlled by private keys, used by all Ethereum participants. EIP-7702 introduces a new transaction type that allows EOAs to temporarily gain smart contract-like capabilities during transactions.

This change will unlock valuable new programmable features across DeFi—including staking networks—like gas sponsorship and automated transaction execution, without requiring an additional, dedicated smart contract wallet.

What EIP-7702 means for ETH + staking

• Enables streamlined processes: EIP-7702 introduces a new level of flexibility for protocol maintenance and management, allowing more automation and streamlined processes to be introduced to staking networks without adding additional smart contract functionality. It can also be used to facilitate privilege de-escalation through the use of sub-keys with limited permissions, which can improve the security of multi-operator staking networks.
• Unlocks new improvements for stakers’ user experience: EIP-7702 will unlock a new landscape of possibilities for user experience improvements, like automatically-waived gas fees, executing multiple actions with one signature, etc. Staking networks can leverage this to build new automations into their network, providing a better experience for stakers.

Learn more about EIP-7702 in the proposal here.

Other EIPs in the Pectra upgrade

• EIP-2537: Adds a precompiled contract to the Ethereum network to support BLS12-381 curve operations, a critical feature for efficient signature aggregation.
• EIP-2935: Modifies the BLOCKHASH opcode to retrieve recent block hashes from contract storage rather than having to access historical data.
• EIP-7549: Reduces attestation overhead by 98%, improving network efficiency.
• EIP-7685: Establishes a generic framework for sharing execution layer requests with the consensus layer. This provides a foundational framework that enables other staking-focused EIPs, like 7002 and 7251, by allowing the execution layer to communicate requests directly to the consensus layer.
• EIP-7623: Increases the cost of calldata to reduce the maximum block size and variance without significantly impacting regular users.
• EIP-7691: Increases the number of blobs per block to enhance data availability and scalability for Layer-2 solutions.
• EIP-7840: Adds per-fork blob parameters to client configuration files to allow for dynamic adjustment of blob-related parameters per network fork, ensuring there is a way to dynamically adjust the target and max blob counts per block.

What’s next for Pectra & resources

Pectra will broaden Ethereum’s capabilities, making regular accounts more programmable, Layer-2 solutions more cost-effective, and validators easier to manage. Additionally, Pectra prepares the groundwork for Verkle trees, an advanced data structure that will pave the way for optimized data storage and access on Ethereum, enhancing scalability and reducing storage needs.

The changes introduced in Pectra also hold immense promise for Ethereum’s staking ecosystem. The expanded validator balance and flexible withdrawal mechanisms enhance staking efficiency. At the same time, the improvements in data handling and network scalability contribute to a more resilient infrastructure for staking, decentralized finance, and rollups.

Ethereum’s client teams are currently hardening their code deployments for the Pectra upgrade. According to the latest Ethereum Developer Consensus Layer Meeting, if ecosystem participants are ready to deploy their code by April 21, 2025, the Pectra upgrade can be merged on May 7, 2025.

Pectra will broaden Ethereum’s capabilities, making regular accounts more programmable, Layer-2 solutions more cost-effective, and validators easier to manage. Additionally, Pectra prepares the groundwork for Verkle trees, an advanced data structure that will pave the way for optimized data storage and access on Ethereum, enhancing scalability and reducing storage needs.

A number of Ethereum community resources provide regular updates on Pectra’s development so that anyone can stay in-the-know while the upgrade progresses.

• EIP-7600: Hardfork Meta - Pectra: Active list of the EIPs included in Pectra
• Ethereum Cat Herders: Pectra Upgrade: A comprehensive hub gathering development resources for the Pectra upgrade

To stay up-to-date on the latest Liquid Collective news, including how Liquid Collective may implement any network developments in light of the Pectra upgrade, resources from across Liquid Collective’s teams and the Ethereum ecosystem, and more, follow Liquid Collective on X @liquid_col.