Dialogue SSV, understanding the LSD track under the protection of DVT

Source: Erin, Binary DAO

Host: Muyi

Guest: Robert Hu, SSV Network China Ambassador

"SSV is a decentralized validator infrastructure based on DVT technology. It serves as an intermediate layer between the beacon chain and validator nodes, managing the splitting and distribution of validator keys, and using Keyshares across multiple nodes to reconstruct data signatures."

---- Robert

Muyi: What does staking mean for Ethereum? Why does the LSD track have the potential for a business scale of hundreds of billions?

Robert: This is a fundamental question in the LSD track. I will share my thoughts in three points. First, the Ethereum main chain is divided into a consensus layer and an execution layer. Staking and Ethereum are like water and a boat; water can carry the boat, but it can also capsize it.

Second, how deep is the water? Currently, the staking amount for Ethereum's POS is only a little over 15%. At present, no chain has a staking amount that is only in the teens.

Solana's current staking rate is around 70%, while ETH's staking rate is about 15%. BNB's staking rate is over 90%; it is not a chain that can go down, but rather one that can be turned off because its staking rate is sufficiently high. There’s a joke that if you take off the headgear of the 21 nodes, you might find that all these nodes are controlled by CZ himself.

So, when you take off Ethereum's headgear, who will you see? Currently, the top stakers in Ethereum are Coinbase, Kraken, BNB, Lido… These institutions hold over 90% of the market share. If these few join forces, it could lead to a fork in Ethereum.

In 2015, several leading Bitcoin mining pools combined their hash power to exceed 51%. At that time, members of the Bitcoin community had a strong belief in decentralization, and they voluntarily diverted hash power from the leading pools to smaller ones, preventing a 51% attack that year. However, in 2017, Bitcoin still forked.

Now Coinbase has decided to create a layer two, and the core logic is that as long as you control enough, your influence is significant.

Third, Ethereum is already the largest POS chain by market cap, but it has the lowest staking rate among all POS chains. Its market cap is substantial, reaching nearly $23 billion. From a horizontal comparison, it seems impressive, but from a vertical comparison, it is actually quite low, only a little over 15%.

Let’s calculate: with its current 15% staking rate, controlling 5% of Ethereum could enable a double-spend attack on the entire Ethereum. So where does our logic land?

It lands on the fact that Ethereum currently has a POS volume of around $23 billion, with only about 15% in staking. If we multiply that by 3-5 times, we reach a scale of hundreds of billions.

Muyi: What is the DVT technology we often talk about? What problems can this DVT technology solve?

Robert: Ethereum is divided into two layers: the consensus layer and the execution layer. The validation of POS is also divided into two layers: one is the withdrawal private key, and the other is the validation private key. When you are operating a POS node, your validation is also divided into two layers.

DVT validation nodes. If you use DVT technology, you can keep your withdrawal private key in your pocket, split your validation private key into four parts, and then give these four private keys to four nodes. They will use DVT technology and the Secret Shared Validators technology under SSV to provide the required MPC multi-signature technology for the four validation nodes, ensuring that no one person can control all your validation nodes. Thus, if three out of four sign, your validation can take effect; this is the core function of DVT.

Essentially, it allows Ethereum's POS movers to generate multiple validators, splitting your validation node into multiple shards, and performing validation across multiple validation nodes, thereby helping Ethereum to become more decentralized.

DVT technology itself is written in the second layer of the technical framework after Ethereum's transition to POS, with the top layer being a technical document post-transition to POS. The second layer describes DVT technology, which is why Vitalik still values Ethereum's decentralization. The core work of DVT is to make all Value Dates and Ethereum's validation nodes more stable and secure; in fact, the robustness of security and stability is also something Ethereum places great importance on.

It splits the individual responsibilities of Coinbase and Binance into a system responsibility. For example, in a 3-4 validation system, the 3-4 validation system ensures that even if one validation system goes offline, it can still operate stably. Any one of the four nodes cannot act maliciously, thus increasing the robustness of the system.

Vitalik cares a lot about DVT technology. In a September interview after Ethereum's transition to POS, when asked if he cared about Ethereum's decentralization, he said that SSV was already working on DVT technology and that they were probably well-prepared.

Muyi: Can you describe the SSV solution and its principles?

Robert: Actually, SSV is not as complicated as everyone thinks; it mainly consists of three technologies:

1. Privacy sharing technology (Secret Shared technology), which is somewhat like Bitcoin's SHA256; it is a set of encryption systems with open-source code;

2. MPC wallets, which prevent malicious actions and allow your signing private key to sign within a 3-4 system;

3. Distributed key generation technology (DKG technology), which is also open-source. The challenge lies in how to integrate these three technologies together and make them work. SSV has been tested for nearly a year and a half.

SSV is a decentralized validator infrastructure based on DVT technology. It serves as an intermediate layer between the beacon chain and validator nodes, managing the splitting and distribution of validator keys, and using KeyShares across multiple nodes to reconstruct data signatures.

The basic setup of SSV is to split the validator key into four parts and store them with different operators. Operators can obtain the shared public key and key set of the staker by running an SSV Instance. Each operator holds a part of the private key, ensuring that no single operator can influence or control the entire private key.

Key sharing allows nodes to operate without trusting each other and can tolerate a certain number of faulty nodes (up to the threshold) without affecting validator performance; for instance, if one out of four operators goes offline, it will not impact the operation of the entire validator.

In this way, no single operator can hold the complete private key; at least three operators' Keyshares are needed for successful validation, significantly reducing the likelihood of node malfeasance. Additionally, even if a particular node fails or is under maintenance, it will not penalize the staker.

Muyi: Besides SSV, what other solutions exist in the DVT track? What advantages does SSV have over other solutions?

Robert: Everyone is using DVT technology; the main differences lie in the thresholds and the duration of testnet operations. From the year before last to now, SSV has been tested for nearly a year and a half. I recommend everyone participate in the V3 test; after participating, you will have a significant experience.

Muyi: What stage is SSV currently at? What impact will its mainnet launch have on the current LSD track landscape?

Robert: We have now entered the V3 testnet. Logically or essentially, after testing V3, we have achieved Ethereum withdrawal. We are also ready for the mainnet, which will launch after the Shanghai upgrade.

Additionally, we have partnered with DCG and Hashkey and raised $50 million to create a special Grants program for the LSD ecosystem, hoping to use this funding as leverage to promote the LSD ecosystem. We hope more and more builders will adopt DVT technology to help Ethereum become more decentralized. It’s not about one entity dominating, but rather about "a single spark can start a prairie fire."

Muyi: The valuation of SSV has been a hot topic of discussion and confusion in the market. Can you introduce SSV's business model? How do you value SSV?

Robert: SSV's business model is quite simple; stakers need to pay operators with SSV Tokens. The true value capture of SSV comes from the cost savings it provides to staking service providers like Lido by taking on node operation work. Through the scale effect of the SSV Network, costs are distributed among various operators and ultimately paid to operators in the form of SSV Tokens.

When it comes to valuing SSV, there is a valuation model similar to Taobao's GMV, which values based on business volume. Let’s assume that Ethereum reaches a market cap of $100 billion in the future. If SSV can capture 30% of Ethereum's staking market, then SSV would lock up around $30 billion of Ethereum. If we calculate using a profit of $300 million and a PE ratio of 10, that would be $3 billion.

Additionally, my expectation for SSV is that I compare its B2B business to Link, which once reached a market cap of one-thousandth of Ethereum during a bull market. I analogize that SSV could also reach a market cap of one-thousandth to one-hundredth of Ethereum during a bull market. The above is just a personal opinion and not investment advice.

Muyi: Recently, projects like Ebunker and Diva Network have emerged that directly embed DVT into staking operations. What are your thoughts on the development prospects of such projects?

Robert: Ebunker has recently submitted a proposal to collaborate with SSV. Its embedding in staking operations is essentially the SSV technology. If Ebunker performs well, we might even provide it with some grants, such as $100,000 to $200,000 to support its development. Ebunker’s model is a mining pool model for node services, and I actually have high hopes for this innovative model.

Diva is also working on DVT technology; they are a Chinese team that has received some investment. As for whether they can successfully implement DVT technology and what it will look like, we will wait and see. They are currently conducting a testnet, and if anyone is interested, they can experience it; we welcome more talents to build in the LSD track.

Muyi: DVT is a sub-sector of the LSD track, and SSV is a representative project of DVT. Can you introduce what other sub-sectors and representative projects exist in the LSD track?

Robert: There are three sub-sectors: centralized staking providers like Binance, Kraken, and Coinbase; on-chain staking providers like Lido; and the SSV derivative layer, which uses DVT technology and SSV technology to provide node services for users, such as Ebunker.