Distributed Validator Technology (DVT): A More Decentralized Future to Ethereum Staking

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Is Distributed Validator Technology (DVT) the new meta for liquid staking? 🕵️‍♂️ To capitalize on it, we must first understand what is DVT and what does it bring to Ethereum staking? Which projects are implementing DVT? DVT: A More Decentralized Future to Ethereum Staking 🧵

‼️ Disclaimer: None of the content in this thread is sponsored nor in partnership with any protocol. Nothing mentioned in this thread is an endorsement or financial advice either. I'll always clearly disclose if I am writing something in partnership with a protocol.

Before getting started on DVT, it's important to understand the current state of Ethereum staking and why there's so much interest in distributing validators. To run a validator node on Eth Mainnet, one must stake 32 ETH to a node. That is worth ~$51k at the time of writing.

Clearly locking up $51k in capital is not accessible to everyone. This has opened up the market for liquid staking derivatives that permits investors to: 1⃣ Earn staking yield without needing to lock up your capital. 2⃣ Participate in ETH staking with less than 32 ETH.

As of today, there are dozens of liquid staking derivative (LSD) providers, with 5 owning over 1% of the LSD market. 🥇 @LidoFinance (8.83M Ξ) 🥈 @Rocket_Pool (973k Ξ) 🥉 @binance staked ETH (765k Ξ) 4⃣ @fraxfinance Ether (275k Ξ) 5⃣ @coinbase Wrapped Staked ETH (191k Ξ)

As seen by the numbers above, Lido currently dominates the LSD market with 78% of the LSD market. The more concerning part is that it currently controls over 30% of all staked Ether on the network. This poses serious risks to decentralization.

If you're interested in learning more about the concerns over this, @BanklessHQ has put out two episodes interviewing @hasufl and @dannyryan providing different perspectives on the matter. Hasu Episode: youtu.be/IfuUdIblfrY Danny Episode: youtu.be/2a2owGBkfhQ

The TLDR of the concerns over one LSD controlling a major supply of staked ETH is that it consolidates voting power to a small number of node operators (NOs). In other words, Lido's many validator nodes holding 32 Ξ each are operated by a select group of entities.

Aside from validation power, what about attack vectors? What about if one entity's node infrastructure fails and is no longer able to validate blocks? No matter which way you put it, there are too many points of failure present when you consolidate node operators.

These concerns have motivated builders to explore the question "What if we could decentralize the node operator?" That's where Distributed Validator Technology (DVT) comes in.

DVT allows for an Ethereum validator to be distributed among a cluster of nodes. DVT is broken up into 4 parts: 1⃣ Distributed Key Generation (DKG) 2⃣ Shamir Secret Sharing of BLS Signatures 3⃣ Secure Multi-Party Computation (MPC) 4⃣ DVT BFT Consensus Layer

Not to make this thread too long, I won't be going into the details of all these components, but you can read about them in @MaraSchmiedt's Medium article (incredible read): medium.com/coinmonks/eth2-secret-shared-validators-85824df8cbc0

Basically, DVT is middleware that provides infrastructure resilience to the validator infrastructure that Ethereum's Proof of Stake network uses. With DVT, you can break up the key that signs the validator and distribute it among a number of people, similar to a multisig.

So what are the benefits of DVT? 1⃣ Reduced exploit risk due to key fragmentation across separate parties 2⃣ Better uptime, as the validator relies on more node operators that act as a failsafe. (ex. if 1 of 4 node operators fail, 3 can still sign). Reduces slashing risk.

3⃣ Decentralization of parties involved in operating nodes. All of these benefits can mitigate many of the concerns people have regarding liquid staking derivative projects taking over a large share of Ethereum's validators.

No innovation is without its drawbacks. ❌ Distributing the node operators adds complexity to the validation process and introduces smart contract and other risks ❌ Increasing the amount of parties involved increases operational costs that can lead to decreased profits

Now that we've gotten a good understanding of what DVT is, here's a non-exhaustive list of projects actively working on it: 👉 @ObolNetwork 👉 @ssv_network $SSV 👉 @staderlabs $SD, $ETHx and $rsETH 👉 @divastaking $DIVA

@ObolNetwork has built an ecosystem for DVs for Ethereum that allows node operators to generate and distribute keys and deploy DVs on their network. They have already partnered up with many large names in the industry to test their network. Status: Mainnet Alpha, 40 NOs

The @ssv_network has also built infrastructure to facilitate DVs to launch. Their focus seems to be with liquid staking protocols to allow them to decentralize their node operators. Status: Permissioned Mainnet, 40 Operators, 353 Validators 🪙: $SSV

@staderlabs decided to directly implement DVT into their own liquid staking derivative protocol. Users can stake their ETH in return for Stader's LSD $ETHx. Currently 23k ETH ($34.6M) is staked on Stader. Stader also supports other networks for liquid staking. 🪙: $SD

@divastaking is also taking a crack at LSDs. They're currently running an Early Staker initiative encouraging users to deposit $ETH or $stETH to their vaults for $DIVA as they wait to launch on Mainnet. Status: Testnet and accepting deposits on Mainnet 🪙: $DIVA

Hopefully you've learned something new about DVTs! @TheDeFISaint's post on DVTs helped me out in my research and I definitely encourage you all to check it out: twitter.com/TheDeFISaint/status/1712757426363986096

Huge shoutout to @Leo_Glisic for his amazing thread on DVT written all the way back in May 2022! Borrowed a diagram from his thread when preparing this one (credited in image description). twitter.com/Leo_Glisic/status/1530589456872271872

Be sure to follow these gigabrains who post way more consistently than me: @_FabianHD @schizoxbt @CryptoDragonite @pt1mfv_ @rektdiomedes @Chinchillah_ @arndxt_xo @0xsurferboy @0xShinChannn @Slappjakke @DeFiMinty @CryptoShiro_ @crypto_linn @thelearningpill @2lambro @poopmandefi