Simple DVT: A New Phase For Lido on Ethereum

April 16, 2024 in Node Operator, Ethereum by Lido

The Simple DVT module is now officially ready for mainnet, with all of the Obol Cohort 1 clusters ready to accept ETH deposits 🎉

Since the Lido DAO voted on the deployment of the Simple DVT Module 6 months ago, the groundwork has been laid to significantly diversify the Lido Node Operator set with the participation of community stakers (including solo stakers) and drive future innovation within the Ethereum staking ecosystem.

When new depositable ETH flows into the Lido protocol, it will flow into the Simple DVT Module, and only once the Simple DVT module either runs out of depositable validators or reaches capacity, will any new stake go to the Curated Module.

The third Obol testnet surpassed all minimum performance benchmarks and mainnet onboarding of the first cohort of 12 clusters is underway.

The third SSV Network testnet is days away from completion, with all performance metrics currently above the minimum benchmarks. A blog post reviewing the trial is expected to be published in the coming weeks, with an in-depth overview of both SSV Network DVT and cluster performance.

Read on to learn more about the inner workings of the Simple DVT, progress made to date, and expectations for how many Node Operators are expected to be added in the coming months.

What is Simple DVT?

The Simple DVT Module (sDVTm) is the second mainnet Lido protocol module, added following an on-chain Aragon vote in February 2024 with record voter participation. The module provides the first opportunity for solo and community stakers to participate in running validators using the Lido protocol by leveraging the established design of the Curated Operator Module and DVT solutions provided by Obol and SSV Network.

Per the original proposal, the module is initially capped at 0.5% of total Lido stake (with the option to be increased via DAO vote) and is expected to allow for the addition of 250 net-new Node Operators to the protocol.

The sDVTm is intended to be wound down within 3 years, during which time more scalable DVT modules with permissionless elements are expected to have been added to the protocol.

Why Simple DVT?

As is now being demonstrated, the fastest route to enhancing the Lido protocol's decentralization and operational robustness lies in adopting DVT. In just the first two cohorts of operators expected to participate in the Simple DVT module using Obol based DVs (Distributed Validators), 139 net-new Node Operators will be using the protocol to run validators. This includes 70 solo stakers, 28 community stakers, and 41 professional node operators, in addition to 22 members of the Lido on Ethereum Curated Set.

In its essence, DVT functions as a system that operates similarly to a multisignature (multi-sig) setup for running a validator. Rather than relying on a single node operator, DVT relies on multiple node operators, each managing distinct nodes that communicate and collectively reach consensus to fulfill validator responsibilities.

The benefits of DVT are substantial. It enhances validator resilience, mitigating single points of failure through active:active redundancy and reducing the risks of validator downtime. It also promotes decentralization in various aspects, including across infrastructure, geographical distribution, and client diversity. Additionally, DVT enhances security by using Distributed Key Generation (DKG), adding an extra layer of protection against potential threats.

As the first module in the Lido protocol to adopt DVT, the Simple DVT Module also presents an opportunity to batte-test DVs ahead of expected modules that would add DVT adoption at scale. By seeing the first hundreds of Obol and SSV Network DVs active on mainnet utilizing the Lido protocol, the Lido DAO will be able to assess and compare validator performance in a way that showcases the expected decentralization and resilience benefits that are necessary to justify scaled adoption.

Mechanisms Used by the Simple DVT Module

Node Operator Selection

Following each testnet, an evaluation process is held by the Lido Node Operator Subgovernance Group (LNOSG) to assess each participant’s performance across various quantitative and qualitative metrics, including uptime, validator duty completion, response times, and ability to self-diagnose and troubleshoot issues with their nodes.

During the evaluation, the LNOSG also considers the geographic location, hosting type, and supported execution and consensus layer clients to promote the decentralization and distribution of node level infrastructure.

When the evaluation is complete, the LNOSG makes a proposal to the DAO including cluster compositions and participants to move forward to mainnet. After a week discussion period, if the DAO does not raise significant concerns regarding the cluster composition or participants, the mainnet onboarding process begins.

Simple DVT Module Committee

To reduce operational friction in voting, the DAO voted to create a multi-sig committee known as the Simple DVT Module Committee (SDVTMC) to be responsible for creating Easy Track motions specifically for Simple DVT that can create new clusters, activate and deactivate existing clusters, raise and lower cluster key limits, and change cluster manager and reward addresses.

The Simple DVT Module Committee is made up of two contributors from the Lido DAO, 3 contributors from the Lido Node Operator Subgovernance Group, one Obol contributor, and one contributor from the SSV Network DAO.

The Easy Track optimistic governance process streamlines the execution of operational processes related to the expected 60-80 mainnet Simple DVT clusters in 2024. On mainnet, a 72 hour objection period exists for LDO voters to veto any active motions related to these cluster operations by using the Simple DVT EasyTrack smart contract, with an optional UI also available.

Simple DVT Economics & Reward Distribution

To encourage Node Operator participation and support DVT providers, the Simple DVT Module has a 2% treasury fee and an 8% module fee (as described in the Lido Staking Router technical docs), shared between Node Operators and DVT providers. This economic model acknowledges the unique challenges of running a small number of validators with multiple parties and aims to sustain DVT technology development.

Each participant receives 1% of net cluster rewards regardless of DVT provider. Obol also receives 1% of net Obol cluster rewards, while SSV Network receives rewards denominated in the SSV token via SSV Network Fees.

As outlined in the SSV [DIP-11] Mainnet Proposal, the SSV Network fee is currently 0.5% of Ethereum staking rewards. This will increase to 0.75% after 365 days pass from the launch of the initial configuration, and increase to 1% 730 days after the launch of the initial configuration. The SSV DAO grants committee approved a grant to cover the SSV Network SSV token network fee for the first year of operation in February.

During the cluster setup phase, each participant submits their Individual Manager Address and Individual Reward Address, from which cluster specific multi-sigs representing their Cluster Node Operator entries are generated and reward splitter contracts are pointed to for validator reward distribution.

To simplify the reward claiming process for Simple DVT Node Operators, clusters utilize two sets of smart contracts:

A wrapper developed by Obol that wraps stETH rewards into wstETH, charges an (optional) fee, and sends the remainder of the wstETH to the next smart contract,
An 0xsplits set of smart contracts that allows for the distribution of rewards between participants.

A wrapper contract is created via the ObolLidoSplit factory and this contract is specified as each cluster’s reward address. This contract is responsible for wrapping stETH rewards to wstETH and when applicable, gives the DVT provider their reward share. This contract can be called by anyone, and will transfer wstETH to a split contract created via another factory (the main 0xsplit contract), from where each individual cluster participant can claim their rewards.

Current Status

As of April 16th 2024, the Simple DVT Module has been deployed on mainnet and the first 12 clusters of Obol Cohort 1 have onboarded onto mainnet following a successful testnet surpassing all minimum performance benchmarks. The Cohort 1 clusters are in the process of receiving deposits for their initial 5 validators. When each of these 12 clusters have 5 active validators, a 30 day performance monitoring period will begin.

At the conclusion of the 30 days, a performance report will be presented to the DAO, and if performance is comparable to the overall validator set, a proposal to raise the key limits of these clusters to 10 validators each and start onboarding of the Obol Cohort 2 clusters will be made.

For SSV, the first clusters have now exited and the performance monitoring period is finished, with SSV Network also surpassing all of the minimum required benchmarks. Participants in the testnet are in the process of removing their validators from the SSV Network smart contracts, and will be testing the testnet reward claiming flow.

A blog post detailing the entire SSV Network testnet is expected to be published next week, including an in-depth review of overall SSV and cluster performance and next steps for SSV participants’ path to mainnet.

Scaling the Simple DVT Module

With the Simple DVT Module now deployed and the Obol and SSV Network testnets complete, the SDVTM has officially entered the scaling stage.

The original Simple DVT Module proposal suggested 210+ net-new Node Operators could be onboarded to the protocol via the Simple DVT module. Following the successful Obol testnet where 139 net-new Node Operators were proposed to the DAO for mainnet onboarding, this goal was updated to reflect the potential addition of 250 net-new Node Operators, with the opportunity to be surpassed following the 4th round of Lido x Obol & SSV Network testnets.

On top of the 37 existing Lido on Ethereum Curated Node Operators, the addition of 250 net-new Node Operators on mainnet would represent 676% growth in the number of NOs using the Lido protocol to run mainnet validators.

By utilizing DVT, the infrastructure run by these Node Operators is expected to be more resilient, secure, and decentralized, with each validator benefiting from DKG, nodes run from multiple countries, and with different client combinations.

As Obol and SSV Network Cohorts 1 & 2 are added to the module, regular performance updates will be shared with the DAO. If performance of these validators looks comparable to the overall validator set, a proposal to raise the share limit of the module to 1.5% - 2% could be made to the DAO to improve the economic premise for these participants as well as potentially add further growth to the number of participants.

Next Steps

Importantly, the Simple DVT Module is just an initial step bringing improved resilience and a wider Node Operator base to the Lido protocol. The module is not intended to operate indefinitely, but rather to pave the way for more sophisticated DVT modules that could allow for elements of permissionless onboarding.

In addition, a team of Lido DAO contributors are working on the Community Staking Module (CSM), the first module expected to be added to the Lido protocol that offers permissionless entry.

While the design parameters are not yet finalized an extensive Community Staking Architecture doc has been published with plenty of details and explanation of thoughts gone into the design of the module. The CSM is expected to be highly competitive with a low, capital efficient (staked) bond, no secondary collateral requirements, and offer low gas costs for Node Operator formation and validator management. Excitingly, Node Operators interested in running DVT validators with their friends or colleagues will also be able to utilize the CSM to run DVT based validators through their provider of choice.

Participants of Simple DVT testnet will also be eligible to participate in the CSM’s Early Adoption period, with plans for a reduced bond required to set up their first validator!

The Simple DVT Module is an exciting first step in democratizing access to running Ethereum validators. With hundreds of new Node Operators set to participate in the module, Simple DVT plays an important role in opening up access to using the Lido protocol for more Node Operators, with future opportunities expected over the coming months and years.

If you are interested in participating in the Simple DVT Module, there is still a short window to apply for the next SSV Network testnet. All solo stakers, community stakers, and professional node operators are invited to apply, with the only prerequisite being experience running an SSV based validator on mainnet or testnet. Apply here before the April 24th deadline.