Ethereum staking adoption has accelerated at a breakneck pace, with the network enjoying wide participation. However, the new consensus mechanism has given rise to new concerns. Specifically, the dominance of liquid staking platforms like Lido Finance has reignited debates around centralization.
At present, more than 30 million ETH is being staked to secure the blockchain. However, around 30% of this ETH has been staked via Lido’s staking pools. This means that should Lido break network rules, a third of all staked ETH could be at risk.
Protocols with high concentrations of staked ETH hold an undue influence over the network. Given that Ethereum slashes nodes that break network rules, teams that are misaligned or act in bad faith could compromise network integrity. Regardless of how projects are managed, single points of failure pose unnecessary risks to Ethereum’s long-term growth.
Distributed Validator Technology (DVT) is a novel mechanic designed to decentralize node management on Ethereum. With thoughtful implementation, DVT could fortify the blockchain and ensure that ETH remains decentralized as it continues to grow.
On a high level, DVT splits up responsibilities and ownership for entities running validator nodes. Currently, each validator node is managed by a single private key. This means that the key owner can make unilateral decisions, even if they are not in the best interests of the network.
DVT enables key sharing to distribute this ownership. Instead of relying on a single point of failure, validator private keys are split into roles responsible for different aspects of node management.
For example, a portion of the key could be delegated to a block proposer, who proposes new transaction blocks via the node. Other portions of the key could be held by managers who attest the validity of new blocks and manage distribution of rewards.
By splitting the key of a single validator according to roles, DVT reduces centralization while also promoting more effective node management. As more parties are involved in signing messages from a node, the risk of slashing penalties is far lower than storing the private key on a single point.
From a tech perspective, DVT solutions contain five fundamental components:
DVT also carries robust security in the form of Istanbul byzantine fault tolerance (BFT). This mechanic ensures that validators can stay active even if some operators go offline or attempt to act maliciously.
DVT carries significant benefits for all forms of ETH staking, from solo staking and institutional outfits to liquid staking pools.
Solo stakers can harness DVT to split their keys across remote nodes while their full private key remains offline. As a result, solo stakers can reduce their hardware costs and insulate themselves against potential exploits.
Staking service providers need to manage many validators for their users, who are typically institutional clients. With DVT, these platforms can add important failsafes to their operations. Additionally, distributing key management can reduce operational costs for providers while also lowering risk.
Due to current constraints, staking pool operators are responsible for managing thousands of validators for users. Lido, for instance, manages more than 9 million ETH staked across 288 thousand validator nodes.
DVT addresses this risk by splitting the private key and node management across more operators. As a result, operators only hold key shares rather than full private keys. This is how Origin Ether supports DVT through its liquid staking token, while earning SSV token incentives for OETH holders along the way.
While DVT holds many benefits, it’s important to be mindful of the potential risks the technology may pose.
Specifically, adding an additional component to ETH’s mechanics could make the network vulnerable to new attacks. This makes it especially important that DVT is implemented thoughtfully.
Additionally, DVT could increase operational costs and network latency as nodes are split between more parties.
These risks can be mitigated with careful and considered implementation. From a broader perspective, slight increases in costs and latency are small prices to pay for the enhanced security offered by DVT.
Ethereum is scaling to achieve an ambitious vision of becoming the world’s computer. The network’s long-term roadmap is geared towards bringing Ethereum’s utility to the mainstream, so that anyone can harness unique opportunities in DeFi, NFTs, and beyond.
To achieve these goals, the network needs an unshakeable foundation that protects users and keeps funds safe from potential attacks. At scale, single points of failure could put trillions of dollars at risk. Given that staking forms the backbone of the network, distributing validator keys is an important step toward minimizing these risks.
Ethereum’s sprawling community of builders is constantly working to make the network as robust as possible. In June, the network boasted nearly 6,000 daily active developers contributing to the chain’s growth. These innovators are actively exploring technologies like DVT to ensure that the network remains as secure as possible.
While more than 25% of ETH in circulation has been staked, this figure is set to increase in coming years. Many other proof-of-stake chains record over 40% of their supply staked.
Origin Ether (OETH) offers users a seamless gateway to stake ETH, built on an ethos of decentralization and best-in-class security. Implementing distributed validator technology, OETH improves on fault tolerance while offering holders enhanced yield.
Discover how OETH can help you stack ETH faster: originprotocol.eth.limo
