DVT is regarded by investors as Lido's killer weapon. Can the price soar again?

Recent market data shows that Lido’s share of the Ethereum staking market has declined recently. At last count, Lido’s staking share has dropped to less than a third from its previous lead. Especially against the backdrop of the rise of new staking protocols such as restaking, Lido’s market share seems to be challenged to a certain extent. Meanwhile, projects such as EigenLayer and LRT are reportedly attracting significant inflows, which is also having an impact on Lido's market position.

However, these market changes have not left the Lido team helpless. Recently, members of the Lido DAO made an important proposal for a simple distributed validator technology (DVT), aiming to expand its scale and accelerate its adoption in the Lido protocol. It is reported that the proposal proposes to increase the target share of simple DVT modules from the current 0.5% to 4%. This move is expected to increase the economic viability of participants and accelerate the pace of the protocol’s development.

The importance of this proposal is self-evident. Scaling the simple DVT technology will help further improve the decentralization and security of the Lido protocol. By increasing the target share to 4%, validators can be better attracted and supported, thereby laying a stronger foundation for the future development of the protocol.

Therefore, despite facing the challenge of declining market share, the Lido team is actively seeking solutions and responding to market changes through technical adjustments to remain competitive. In the following discussion, we will delve into the significance of simple DVT technology and its impact on the future development of the Lido protocol.

With highly secure technology, what’s unique about Lido’s simple DVT module?

Distributed Validator Technology (DVT) is an innovative validator management system that runs validators through the collaborative work of multi-node operators. This technology not only increases validator resiliency, it also mitigates the risk of single points of failure through active redundancy, thereby reducing the likelihood of validator downtime. DVT’s diversity is reflected in its support across infrastructure, geographies, and client diversity, making the Ethereum staking ecosystem more decentralized and secure.

Deployment and Advantages of Simple DVT Module:

In October 2023, Lido DAO voted to deploy a simple DVT module, which is an important step in promoting innovation in the Ethereum staking ecosystem. The Simple DVT module leverages Obol Network and SSV Network’s DVT solutions and is designed to enable more users to participate in validator operations through the Lido protocol. The module is initially limited to 0.5% of total Lido shares and may be expanded through DAO voting in the future. This module not only increases the diversity of node operators, but also improves the security and resiliency of the network.

Success of the testnet and mainnet deployment plan:

In April 2024, Lido cooperated with SSV Network to complete the third simple DVT testnet, with participants from 32 countries around the world of 163 stakers and node operators. The test results show that the performance of all clusters meets the standards for mainnet deployment, which lays the foundation for the widespread application of simple DVT modules. In the coming weeks, Lido will submit a proposal to the DAO to introduce a list of testnet-verified participants to the mainnet to further enhance the decentralization and security of the protocol.

Economic incentives and risk management of the simple DVT module:

In order to encourage node operators to participate, the simple DVT module proposes a set of economic incentive mechanisms, including 2% capital fee and 8% The module fee is shared between the node operator and the DVT provider. In addition, Lido offers two risk mitigation options: use existing protection funds to cover potential losses of stakers, or find a third-party protection provider. In the end, Lido chose to use the existing guarantee fund to ensure that the interests of pledgers can be effectively protected in the event of abnormal events.

Prospects and plans for DVT technology:

With the gradual implementation of simple DVT modules, Lido plans to introduce more license-free elements in the next three years Expandable DVT module. These modules will further enhance the decentralization of the protocol and provide opportunities for more node operators to participate. Through these efforts, Lido hopes to democratize staking while maintaining the security and decentralization of the Ethereum network, and continue to maintain its leading position in the Ethereum staking market.

In-depth analysis of the proposal to extend the simple DVT module: Why does Lido take this step?

The proposal aims to obtain DAO approval to expand the scale of the Simple DVT Module (SDVTM), which includes two key parts:

1. Create a larger validator cluster (called For Super Simple DVT clusters), these clusters will be composed of advanced node operators in the simple DVT module together with selected node operators.

2. Increase the maximum target share of SDVTM from the current 0.5% to 4%.

Although not within the direct scope of this proposal, we are working on a strategy to provide additional rewards to users and the protocol by adding DVT-based validators. This strategy is in line with the recently approved ReGOOSE Goal 2, which aims to solidify stETH as the safest and most decentralized liquid staking token (LST) and support its place in the DeFi and LRT ecosystem. Further discussions on this are expected in the coming weeks.

The need to extend SDVTM:

The Simple DVT module has been running successfully in the Lido protocol for three months, showing significant progress in decentralizing the Lido node operator set. Currently, 72 new node operators have joined the protocol through the first batch of Obol, and 67 more are expected to be added in the second batch. In addition, SSV Network’s DVT cluster is expected to go online next month, further enhancing the diversity of node operators.

In the second quarter of 2024, Obol and SSV networks will conduct a new testnet, and it is expected that at least 250 new node operators will join the protocol. This will increase the number of node operators by 676% compared to existing select node operators.

Meanwhile, Obol and SSV have also seen significant progress in their adoption within the staking community. The SSV network currently has nearly 21,000 validators on the mainnet, with a total pledge value of more than $2.4 billion. Obol also announced plans to launch 1,000 mainnet validators in partnership with EtherFi, as well as the “Decentralized 1%” initiative to promote technology adoption.

Specific expansion measures:

1. Expand 72 simple DVT clusters:

Currently, the target share of the simple DVT module is 0.5%, which is equivalent to approximately 1,420 validators . These validators are distributed across clusters in the Obol and SSV networks. However, the existing target share of 0.5% limits the profitability of node operators. Therefore, it is proposed to increase the target share of modules to 4%, which would increase the number of validators to 5,690 and thus improve the economics of node operators.

2. Add 10 new super simple DVT clusters:

It is proposed to add 10 new super simple DVT clusters (5 for each provider). These clusters will be operated by advanced node operators and Composed of selected node operators. The super cluster will initially run 50 validators. After performance evaluation, it may gradually increase to 200 and eventually reach 500.

3. Economic incentives and risk management:

In order to encourage node operators to participate, the simple DVT module proposes a set of economic incentive mechanisms, including 2% capital fee and 8% module fee. , shared by node operators and DVT providers. In addition, to reduce risks, Lido chooses to use existing protection funds to cover potential losses of stakers.

Lido DAO adopted this proposal to further enhance the decentralization and security of the protocol. By increasing target share and introducing super-simple DVT clusters, Lido will be able to attract and support high-quality node operators more broadly. This will not only improve the resiliency and security of the protocol, but will also ensure that Lido continues to remain competitive in the Ethereum staking market. If the proposal is approved, Lido will take an important step toward realizing its core mission and values.

After the DVT proposal, can Lido dominate again?

In the Ethereum staking market, Lido has always been the industry leader, but with the emergence of new staking protocols and technologies, its market share is facing challenges. The latest proposal to extend the simple DVT module aims to re-establish Lido’s position by increasing decentralization and security.

By increasing the size and target share of the validator cluster, Lido aims to attract more node operators and improve the economic benefits of the protocol. The new super simple DVT cluster will not only significantly increase the number of validators, but will also improve the resilience and security of the network. These measures will undoubtedly position Lido in a more favorable position in market competition.

But are these technical improvements enough? In the context of the evolving staking market, Lido also needs to deal with the challenges of other emerging technologies and protocols. Just as Obol and the SSV network have been successfully promoted in the staking community, Lido must continue to innovate and adapt to market changes to stay ahead of the curve.

In the future, can Lido regain the top spot in the staking market through the proposal to expand the DVT module? Can it respond to emerging competitors and changing market demands through continuous technological innovation and market strategies? These are important issues Lido needs to face.

In an increasingly competitive environment in the staking market, Lido’s future is full of uncertainty, but it also contains huge potential. With this proposal, Lido demonstrates its strong commitment to decentralization and security. If these strategies can be successfully implemented, Lido is expected to not only re-establish its market leadership, but also make an important contribution to the healthy development of the entire staking ecosystem.

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