DVT & DVV Incentive Allocation Changes

Summary

This proposal introduces a variable incentive allocation model for Distributed Validator Technology (DVT) incentives accrued to the Lido protocol, split between Node Operators and the Mellow Distributed Validator Vault (DVV). The proposed new mechanism aims to better reflect the real costs of operating DVT‑based validators under current market conditions for Node Operators in the Curated Module (CM) and the Community Staking Module (CSM).

Instead of a fixed incentive split, Node Operator and Mellow DVV staker allocations would adjust dynamically based on the SSV Network Fee and total incentives accrued. This is intended to support sustainable Node Operator economics and allocation to stakers:

• when DVT operating costs are high relative to incentives, the Node Operator share increases (up to 50%);
• when incentives increase or DVT costs decrease, the Node Operator share declines, and more incentives flow to stakers (up to 85%).

The SSV Network Fee and the SSV Incentivized Mainnet Program (IMP) will be viewed as a proxy for certain costs associated with running DVT validators. The proposed share split of the incentives is intended to be equally distributed for Node Operators utilizing either SSV or Obol DVT technology. No changes are proposed to the Simple DVT Module, as DVT provider fees for this module are currently expected to be covered via Node Operator validation rewards.

Background

The SSV DAO recently approved two proposals:

• [DIP-49] sets a maximum ETH/SSV price ratio of 700 in the Network Fee formula, aligning the Network Fee relative to potential incentive parameters and making the operating costs of running DVT validators that incentives are intended to cover more predictable;
• [DIP-39] updates the Incentivized Mainnet Program (IMP) by introducing a 15% annual cap on total incentives allocated to the IMP, which may limit the incentive budget available to offset DVT validators operating costs.

Based on these changes, recent market conditions impacting DVT validators incentives, and the related community discussion, it’s proposed to update the initial Mellow DVV incentives allocation structure. The goal is to help mitigate the impact of lower incentives and higher operating costs on Node Operators, while ensuring stakers receive larger allocations as incentives increase.

Proposed Incentive Mechanism

• The proposed incentive mechanism is self-adjusting and based on predefined parameters: SSV Incentive Rate and Network Fee.
• Under the new allocation structure, the incentive split between Node Operators and stakers is no longer fixed. Instead, it changes depending on the relationship between incentives and DVT operating costs:
  • when DVT operating costs are high relative to incentives, the Node Operator share increases (up to 50%);
  • when incentives increase or DVT costs decrease, the Node Operator share decreases, and more incentives flow to Mellow DVV stakers (up to 85%).
• The SSV Network Fee and the SSV Incentivized Mainnet Program (IMP) are proposed to be viewed as a proxy for certain costs associated with running DVT validators.
• The proposed incentive structure applies to CM and CSM Node Operators using either SSV or Obol DVT providers.
• Incentive shares are dynamically calculated monthly, aligned with SSV IMP incentive distribution timing.

Detailed Allocation Logic

1. SSV Network Fee Coverage: up to 50% of total incentives may be allocated to Node Operators to cover the SSV Network Fee.
2. Surplus incentives distribution: any incentives remaining after the Network Fee is covered are allocated
   • 90% to stakers;
   • 10% to Node Operators.
3. Node Operator Share Bounds: the Node Operator share is always kept between a minimum 15% and a maximum 50% of total incentives.

Illustrative scenarios

The table below shows indicative splits under a range of Incentive Rate and Network Fee rate scenarios. These examples are illustrative only and based on hypothetical scenarios. Actual incentive allocations may differ based on the Incentive Rate and the Network Fee at a given time.

Scenario	Incentive Rate	Network Fee	Node Operator share	Staker share
1	1.50%	0.75%	50.00%	50.00%
2	1.80%	0.90%	50.00%	50.00%
3	2.00%	1.00%	50.00%	50.00%
4	3.00%	1.00%	40.00%	60.00%
5	5.00%	1.00%	28.00%	72.00%
6	6.00%	1.00%	25.00%	75.00%
7	9.00%	1.00%	20.00%	80.00%

For example, in a hypothetical scenario where the SSV incentive rate is approximately 6% and the SSV token price is around $10, this model would result in:

• A 25% Node Operator incentive share, representing a modest improvement over current CM and CSM splits.

At the extremes:

• Low incentive environments (≤2%): Node Operators' allocations could increase up to 50%, with no surplus beyond cost coverage.
• High incentive environments (≈9%): Node Operator share could approach the 15% minimum, with the majority of value accruing to stakers.

Next Steps

If this Snapshot vote is supported by the DAO, the new incentive mechanism would be implemented on an ongoing basis via coordination between contributors to the Lido Foundations and the SSV IMP administrator, starting with the January rewards distribution following SSV’s distribution of January incentives, in line with the execution steps outlined in the Lido Research forum thread tracking incentive distribution. These changes do not require an Aragon on-chain vote.