Incentive misalignment in staking

Staking aligns the security needs of the Ethereum network with its minimum necessary issuance monetary policy, while trying to be fair to ETH owners. However, I think this alignment will be imperfect once withdrawals are enabled.

At the moment, the effective balance has an upper limit of 32 ETH. This was good to begin with, to prevent a small number of over-sized validators running the show. However, this prevents compounding of staked ETH over time. By itself this would be OK, but there is a way around that. For example, if withdraws are approved now, any staker having 32 validators with 33 ETH each can exit and re-enter with 33 validators of 32 ETH, increasing his returns.

This is a problem for two reasons:

1. It creates unnecessary friction, with big players constantly rotating their validators*. It may also affect security, although it seems minor to me.
2. It gives an unfair advantage to large players, that can start compounding quickly, while single validator owners will have to wait until they accumulate 64 ETH.

The simple solution is to increase the max effective balance, for example to 320 ETH. This will solve the problem completely. It may also reduce the number of validators, but without affecting the staked amount. This may be good, making the network more efficient (there is no real reason for me to run several validators on the same computer) and maybe even allowing to reduce the 32 ETH limit.

*The optimal rotation time depends on the number of validators and length of exiting and re-entering.

Original discussion started here: https://www.reddit.com/r/ethstaker/comments/mfzukg/effective_balance_and_partial_withdraws/