DVT is seen by investors as Lido's secret weapon. Will the price surge again?

Recent market data shows that Lido's share in the Ethereum staking market has recently declined. According to the latest statistics, Lido's staking share has dropped from its previous leading position to less than one-third. Particularly in the context of the rise of new staking protocols such as Restaking, Lido's market share appears to be facing certain challenges. Meanwhile, reports indicate that projects like EigenLayer and LRT have attracted significant capital inflows, which have also impacted Lido's market position.
However, these market changes have not left the Lido team at a loss. Recently, members of the Lido DAO proposed an important initiative regarding Simple Distributed Validator Technology (DVT), aimed at scaling its implementation and accelerating its application within the Lido protocol. It is reported that the proposal suggests increasing the target share of the Simple DVT module from the current 0.5% to 4%. This initiative is expected to enhance the economic viability for participants and accelerate the development of the protocol.
The significance of this proposal is self-evident. Scaling Simple DVT technology will help further enhance the decentralization and security of the Lido protocol. By raising the target share to 4%, it can better attract and support validators, thereby laying a more solid 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 technological adjustments to maintain competitiveness. In the upcoming discussions, we will delve into the significance of Simple DVT technology and its impact on the future development of the Lido protocol.

What Makes Lido's Simple DVT Module a Highly Secure Technology?

Distributed Validator Technology (DVT) is an innovative validator management system that operates validators through the collaborative work of multiple node operators. This technology not only enhances the resilience of validators but also mitigates the risk of single points of failure through proactive redundancy, thereby reducing the likelihood of validator downtime. The diversity of DVT is reflected in its support for cross-infrastructure, geographical locations, and client diversity, making the Ethereum staking ecosystem more decentralized and secure.

Deployment and Advantages of the Simple DVT Module:

In October 2023, Lido DAO voted to deploy the Simple DVT module, marking an important step in driving innovation within the Ethereum staking ecosystem. The Simple DVT module utilizes DVT solutions from Obol Network and SSV Network, aiming to enable more users to participate in validator operations through the Lido protocol. Initially, the module is limited to 0.5% of Lido's total shares, with potential expansion through DAO voting in the future. This module not only increases the diversity of node operators but also enhances the security and resilience of the network.

Success of the Testnet and Mainnet Deployment Plans:

In April 2024, Lido collaborated with SSV Network to complete the third Simple DVT testnet, with participants including 163 stakers and node operators from 32 countries worldwide. Test results showed that the performance of all clusters met the standards for mainnet deployment, laying the groundwork for the widespread application of the Simple DVT module. In the coming weeks, Lido will submit a proposal to the DAO to introduce the list of participants verified through the testnet to the mainnet, further enhancing the protocol's decentralization and security.

Economic Incentives and Risk Management of the Simple DVT Module:

To encourage node operators to participate, the Simple DVT module proposes an economic incentive mechanism, including a 2% fund fee and an 8% module fee, shared between node operators and DVT providers. Additionally, Lido offers two risk mitigation solutions: using the existing guarantee fund to cover potential losses for stakers or seeking third-party guarantee providers. Ultimately, Lido chose to use the existing guarantee fund to ensure effective protection for stakers' interests in the event of anomalies.

Prospects and Plans for DVT Technology:

With the gradual implementation of the Simple DVT module, Lido plans to introduce more scalable DVT modules with permissionless elements over the next three years. These modules will further enhance the protocol's decentralization and provide more opportunities for node operators to participate. Through these efforts, Lido hopes to maintain the security and decentralization of the Ethereum network while democratizing staking, continuing to lead in the Ethereum staking market.

In-Depth Analysis of the Proposal to Expand the Simple DVT Module: Why is Lido Taking This Step?

The proposal aims to gain DAO approval to scale the Simple DVT Module (SDVTM), specifically including two key parts:

1. Creating larger validator clusters (referred to as Super Simple DVT Clusters), which will consist of senior node operators from the Simple DVT module and selected node operators.
2. Increasing the maximum target share of SDVTM from the current 0.5% to 4%.
   Although not directly within the scope of this proposal, we are exploring a strategy to provide additional rewards for users and the protocol by increasing DVT-based validators. This strategy aligns with the recently approved ReGOOSE Goal 2, which aims to consolidate stETH as the safest and most decentralized liquid staking token (LST) and support its position in the DeFi and LRT ecosystems. Further discussions on this are expected in the coming weeks.

The Necessity of Expanding SDVTM:

The Simple DVT module has successfully operated within the Lido protocol for three months, demonstrating significant progress in decentralizing Lido node operator clusters. Currently, 72 new node operators have joined the protocol through the first batch of Obol, with a second batch expected to add 67 more. Additionally, the DVT clusters of the SSV network are expected to go live next month, further enhancing the diversity of node operators.

In the second quarter of 2024, Obol and SSV Network will conduct a new testnet, with at least 250 new node operators expected to join the protocol. This will increase the number of node operators by 676% compared to the existing selected node operators.
Meanwhile, the adoption of Obol and SSV in the staking community has also made significant progress. The SSV network currently has nearly 21,000 validators on the mainnet, with a total staking value exceeding $2.4 billion. Obol has also announced plans to launch 1,000 mainnet validators in collaboration with EtherFi, as well as a "Decentralized 1%" initiative to promote technological adoption.

Specific Expansion Measures:

1. Expand to 72 Simple DVT Clusters:
   Currently, the target share of the Simple DVT module is 0.5%, equivalent to about 1,420 validators. These validators are distributed across clusters in the Obol and SSV networks. However, the existing 0.5% target share limits the profitability of node operators. Therefore, it is proposed to increase the module's target share to 4%, which would increase the number of validators to 5,690, thereby improving the economic benefits for node operators.
2. Add 10 Super Simple DVT Clusters:
   It is proposed to add 10 Super Simple DVT Clusters (5 for each provider), which will consist of senior node operators and selected node operators. The super clusters will initially operate 50 validators, with the potential to gradually increase to 200 after performance evaluation, ultimately reaching 500.
3. Economic Incentives and Risk Management:
   To incentivize node operators to participate, the Simple DVT module proposes an economic incentive mechanism, including a 2% fund fee and an 8% module fee, shared between node operators and DVT providers. Additionally, to mitigate risks, Lido has chosen to use the existing guarantee fund to cover potential losses for stakers.
   Through this proposal, Lido DAO aims to further enhance the protocol's decentralization and security. By increasing the 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 enhance the protocol's resilience and security but also ensure that Lido remains competitive in the Ethereum staking market. If the proposal is approved, Lido will take an important step towards realizing its core mission and values.

Can Lido Reclaim Its Dominance After the DVT Proposal?

In the Ethereum staking market, Lido has been a leader in the industry, but with the emergence of new staking protocols and technologies, its market share is facing challenges. The latest proposal to expand the Simple DVT module aims to reinforce Lido's position by enhancing decentralization and security.
By increasing the scale of validator clusters and target shares, Lido aims to attract more node operators and improve the economic benefits of the protocol. The newly added Super Simple DVT Clusters will not only significantly increase the number of validators but also enhance the network's resilience and security. These initiatives will undoubtedly position Lido more favorably in market competition.
But are these technological improvements enough? In the context of an evolving staking market, Lido also needs to address challenges from other emerging technologies and protocols. Just as Obol and SSV Network have successfully promoted their solutions in the staking community, Lido must continuously innovate and adapt to market changes to maintain its leading position.
In the future, can Lido regain its top position 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 questions that Lido needs to face.
In an increasingly competitive staking market, Lido's future is filled with uncertainty but also holds great potential. Through this proposal, Lido demonstrates its firm commitment to decentralization and security. If these strategies can be successfully implemented, Lido is not only expected to re-establish its market leadership but also make significant contributions to the healthy development of the entire staking ecosystem.