Before the upgrade in Shanghai, ECN had the honor to invite representatives of three important liquid staking service providers, StakeWise, Rocket Pool and Lido, to be guests on the ECN Podcast, and chat with them about the impact of the upgrade of Ethereum Shanghai on Staking users and the entire industry structure, as well as the What innovations and changes are expected to be brought to Ethereum Staking by the upcoming large-scale upgrades of the three protocols.
【Anchor of this issue】
【Anchor of this issue】
Stephanie
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00:45 Lido's staking philosophy
03: 50 Lido's Token Model
06:07 How Lido DAO chooses node operators
10:01 Lido node operator set health
11:49 Lido's multi-chain dilemma
15:04 How to see Lido surpassing 30% network share
20:12 Two impacts of the Shanghai upgrade on Staking
23:37 Possibility of the LSD landscape being reshuffled
25:50 How to think about institutional staking
33: 31 Restaking
28:04 Innovation and new changes in the field of staking (on the protocol layer)
35: 44 Two modes of Lido V2 withdrawal
42:01 Lido V2 launches Staking Router
44: 57 How individual stakers can access Staking Router
46: 50 How the Lido protocol will guarantee the quality and performance of node operatorsclickListen to Podcasts
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About Lido
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What is Lido's staking philosophy? Has there been any adjustments since launch?
So the way Lido started and has been run is by bringing in a set of node operators on a permissioned basis. They are selected and vetted by the Lido DAO, and then invited into the Lido protocol to run validators. But right now the Lido contributors are working a lot to make the system open to many different operators. Therefore, the basic principle of Lido's staking philosophy is to make staking as easy, convenient and simple as possible for as many different participants as possible, and to pledge in a transparent way on the chain.
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Token Model of Lido Protocol
But Lido also provides a value-accumulating token, namely encapsulated stETH, wstETH. There are two main reasons for launching wstETH. One is that some users may prefer value-accumulating tokens, and the other is that some DeFi applications can better integrate with value-accumulating tokens.
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How does Lido DAO select new node operators? What is the current health of Lido's 29 node operators?
Lido DAO basically tries to make decisions based on a set of principles or strategies that a good set of node operators in the different networks that Lido participates in should have. In short, these good properties are related to server diversity, geographical distribution, client diversity, etc. The reason why server diversity is important is that people basically use two kinds of infrastructure, local data centers or cloud services, and we find that many validators will choose the easier method, especially at-home stakers. The more geographically dispersed jurisdictions are, the more it prevents all validators from being over-represented by a certain continent or country. Client diversity is to prevent large-scale verifiers from being disconnected due to loopholes in a majority of clients.
Lido DAO tries to combine all these aspects to vote. On the Lido Forum, there is a quarterly report on the indicators of validator node operators. Lido DAO contributors, token holders, etc. can vote according to the data in these reports. Discuss, then select a new node operator.
I think Lido node operators in general have come a long way in the last year and a half, not only improving the diversity of clients in the Lido node operator set, but Ethereum in general.
And Lido's node operator set can also be improved in the following aspects:
The absolute number of node operators. 29 is not an amount we are comfortable with. Lido as a DAO and a protocol, especially considering the v2 version of Lido, this number will definitely increase significantly in the future.
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Lido's multi-chain dilemma, how to balance between different chains?
It starts with answering the questions of what Lido is, how the Lido DAO that governs a set of protocols works, and what is at the heart of Lido's existence.
About MixBytes announced some time ago that it will no longer use the staking services of Polkadot and Kusama on Lido. One of the reasons is that Lido’s priority has been tilted towards Ethereum. The relevant background of this matter is that MixBytes previously wanted to support Lido on Polkadot and Kusama, and this proposal was voted by DAO. But later, the team decided it wasn't worth it and decided not to support it. At this point, the DAO is in a very difficult position, because it is not a centrally controlled organization, and it is likely that the deprecation process will continue to completion. I imagine this is what happens when a DAO tries to find a protocol worth investing in.
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How do you view the problem that the network share of the LSD protocol exceeds 30% (the key consensus threshold)?
I can't speak for Lido on this issue, but from a Lido contributor's perspective, here are some of my thoughts.
First off, nobody can say that Lido having a significant presence on the network is a good thing. However, there are many different angles to look at the technical risks that may arise from this problem. I am not saying that these risks are not important, but I think there are many other wind directions in the staking ecosystem that have not received sufficient attention and discussion. They may be more important than this issue.
Second, this is definitely an issue that Lido DAO wants to address in case it might rise further. Some other contributors have thought of a dual governance scheme (dual governance), which allows both stakers and LDO holders who hold stETH to vote on the decision of the agreement, and provide exit channels and mechanisms in the worst case . I don't think many DAOs are thinking about these mechanisms and protections, even though we're still in the design phase.
The influence or potential control over staking by many participants in the Ethereum ecosystem is not immediately apparent when you look at the number of validators running on a protocol. I think one of the more important things we should be thinking about is how various different types of participants (including liquid staking schemes like Lido) have an impact on stake share and control. A simple example is that even if there are five solutions each with a 20% share, but one of the operators or a group of operators work closely together to have 50% each of these 20% agreements, then they are actually right The web has more manipulation. Moreover, they are not constrained by the agreement itself to do so.
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Impact of Shanghai Upgrade on Pledging
After Shanghai upgrades and activates withdrawals, there are partial withdrawals and full withdrawals. Partial withdrawals are probably the most interesting part, allowing stakers or validators to withdraw any portion of their balance other than 32 ETH. Since withdrawals are ongoing, this means we will see a continuous flow of rewards back to the executive layer. This is interesting because, on the one hand, it will reduce the number of validators that exit and thus reduce the pressure on the network without having to worry about validators constantly exiting and re-entering the system. On the other hand, the lockup is no longer indefinite, and the lockup is now controlled by the user himself.
The significance of activating withdrawals to Ethereum is to enhance users' confidence in the robustness of Ethereum network technology. Thus, it completes the core functionality loop related to staking. Developers can also shift their focus to other aspects of Ethereum development.
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Will LSD's market share be reshuffled after Shanghai's upgrade?
To be honest, I don't know, I can only talk about some of my intuitions.
They may also go directly to the secondary market without making a withdrawal, because withdrawals take a long time to wait.
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What exciting innovations and changes will the staking industry bring?
I would like to share two points, one is the next core function of Ethereum’s Proof of Stake, and the other is restaking.
Two Possible Staking Modifications on the Ethereum Protocol
Regarding the first point, in terms of staking, there may be two modifications to the Ethereum protocol. The core idea at one point is to have a verifiable representation on the Ethereum execution layer that correlates to some value of validators, i.e. how much they have staked, whether they are running, active on the beacon chain or exited etc., which is the beacon state root. Exposing the hash tree root of the beacon chain block at the execution layer will allow any staking solution to build a trustless oracle. Currently, all oracles related to staking are trusted. Because basically, you need someone to monitor the number of validators on the beacon chain, the total and the accumulated rewards, so that the staking software knows whether it needs to increase or decrease the rebase tokens. If monitoring can be done only by validating data already on the execution layer, trustless oracles can be built, which greatly reduces the inherent technical risk of most liquidity staking.
See: https://eips.ethereum.org/EIPS/eip-4788
Another possible modification on Ethereum is triggerable withdrawals. Running a validator on Ethereum has two sets of keys - the validator key and the withdrawal key. In liquid staking solutions, withdrawal keys are usually managed by smart contracts and owned by the protocol. Validator keys are critical to validating efforts on the network. Currently, on the Lido protocol, validator keys are kept, managed, and properly used by node operators. One challenge here is that you need to have the validator key to exit, which means that the node operator needs to actively sign the exit message to achieve it. The EIP I want to mention is about triggerable or forced exit, that is, the smart contract on the execution layer should be able to do it. For a specific validator, the operator agrees to give control to the smart contract. This smart contract can send exit messages directly to the consensus layer, and ensures that the technical risk that the operator may not fulfill the DAO or protocol request to exit the validator is eliminated. I think, just like enabling withdrawals completes the cycle of staking-related technologies and lock-up risks, triggerable withdrawals complete the cycle of staking agreements.
Restaking
See: https://ethresear.ch/t/0x03-withdrawal-credentials-simple-eth1-triggerable-withdrawals/10021
At present, there are many challenges in implementing restaking or doing it in the right way without causing many possible economic risks or uncontrolled technical risks. But it's an interesting concept to see how composability works in a proof-of-stake system. In a way, it's very similar to liquidity staking because even though a proof-of-stake protocol doesn't support liquidity staking, it's a natural thing to implement at the application layer because the market will demand it and create it. Therefore, the situation of restaking will be similar. If there is a demand for restaking, there will be market forces to create solutions at the application layer. What remains to be seen is the extent to which these solutions need to be tightly coupled or at least integrated with the protocol layer.
Lido V2 upgrade
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Two withdrawal modes for V2 upgrade
Turbo Mode and Bunker Mode were devised by us contributors when we envisioned withdrawals. Turbo mode will hopefully be the default, and will always work in this mode. Bunker mode is more like a fail-safe mode, a mode that protects users, stakers, and the protocol in the event of a bad network situation.
Withdrawals go into bunker mode when there is a problem with the network, such as when there are large slashing events happening at the same time on the consensus layer. The reason why the Bunker mode is needed is that when you want to exchange the pledged stETH back to ETH, but at this time there is an issuance slashing event, it is difficult for the protocol to know whether the slashing will affect the validators related to the ETH you want to withdraw . If those validators were affected, you'll want to wait for the slash to be fully over to see how total rewards might be reduced by slashing. This way, each user ends up getting the correct amount of rewards, rather than some users getting more or less rewards depending on when they entered the queue. So the bunker model is to slow down the withdrawal process so that everyone gets their fair share. But this mode will only be activated in critical or emergency situations.
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As far as I know, there are no security issues. Mainly the audits are not done, and the testing that needs to be done to make sure the node operators set up the processes and mechanisms correctly is not done yet.
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Stake Routing - An Important Step in Lido's Decentralization
Currently, the Lido protocol has only one registry of node operators, which is controlled by the DAO. What staking routing has to do is to allow many different ways to happen. The design and current implementation of the pledge routing is that it does not make decisions by itself, and the DAO will make decisions through the pledge routing in the following aspects: which modules can be connected to the pledge routing, and how much deposit is allocated to the module. The advantage of this is that each module can manage the set of node operators in its own way. There may be some modules that use bonds and are completely license-free, and some modules that are completely license-free but do not use bonds but are fully insured because of the funds allocator.
There are other modules that may use Distributed Validator Technology (DVT), which is the staking infrastructure that is expected to be on the mainnet this year. The two largest solutions now are the SSV network and the Obol network. This technology will greatly reduce the cost of running verification. operational and technical risks for stakers, and make it easier for stakers to participate in the verification process.
So if you think of staking routing as creating a marketplace of modules, this is actually open to anyone who wants to contribute to the staking mechanism and interact with Lido, you just need to have a certain code background or need to communicate with someone who has a code background. This is different from Lido V1's fully permissioned model.
When V2 goes live, it is expected that Lido contributors or other parties will create new modules that access the staking routing. These modules may allow individual stakers or community stakers to participate in different ways, some may be through DVT solutions, and some may require you to point the withdrawal certificate to Lido's smart contract, and then indicate that you want to join the Lido agreement. There are options like bonds or whitelists. If you want to be truly license-free, I think it would be more appropriate to use DVT and a small amount of bonds at the same time. If DVT is not applicable, then the bond amount needs to be increased. It really depends on the different flavors of community staker engagement that each module has in mind.
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Lido contributors are cooperating with the Nethermind team on a research on designing a semi-automatic or fully automatic autonomous scoring system for operators and validator sets, which is equivalent to abstracting the decision-making indicators for current Lido contributors to select node operators , put on the chain. We may implement various types of scoring systems algorithmically, or obtain data from different places (could be oracles, third-party data service providers such as metrika or rated.network, or on-chain insurance companies). By combining all this information and then extracting some actionable recommendations that pledge routing can use to determine which operators should get a deposit. So what we're doing is deciding what are the best parameters that a good validator set or operator set should have, and then they implement that as a semi-automated scoring and stake distribution system.
reference materials
➤ Isidoros Passadis Personal Twitter
➤ Collaborative research between Lido and Nethermind
➤ Lido's Quarterly Node Operator Validator Metrics Report
➤ MixBytes abandons Lido's staking service on Polkadot and Kusama
