Following a discussion of the draft proposal on the Lido Research forum for the Simple DVT Module, the advancement of the proposed module is now up for Snapshot vote by the Lido DAO.

The vote will consider two main components:

1. Should the Lido DAO add the Simple DVT module as described within the proposal? 2. Should potential module slashing penalties be covered by the DAO cover fund or explicitly purchased & scoped by third-party cover?

The vote will cover these questions in a multiple choice format: 1a. Deploy Simple DVT 1b. Do not deploy Simple DVT 2a. Use Lido cover fund 2b. Use 3rd party cover provider

Voters should first select between options 1a and 1b to determine if the module should be deployed on mainnet following a successful testnet. For voters that choose option 1a, they should also vote on whether to utilize the Lido cover fund (2a) or 3rd party cover provider (2b). Voters that choose option 1b can skip voting on options 2a and 2b. If option 2b is chosen, a subsequent vote will be held to determine the 3rd party cover provider.

If option 1a passes with quorum, the risk mitigation option with the highest number of votes between 2a and 2b will be chosen as the path forward.

Below is a summary of the proposal and excerpts of certain sections from the Simple DVT policy for summary purposes. Voters are encouraged to read the proposal on the Lido Research forums here or IPFS upload here.

Staking Router Module Proposal: Simple DVT

Proposal Summary

This proposal seeks DAO approval for the addition of a new module that will utilize Distributed Validator Technology (DVT) on mainnet through Obol Network and SSV Network implementations. This module will be referred to as the “Simple DVT” module, due to the manual coordination and curation required to adopt this early-stage technology, and to reflect that this module is not intended for indefinite and “at-scale” use. This module would initially be capped at 0.5% of total Lido stake.

DVT represents the fastest way to add many new Node Operators to the Lido Node Operator set with a more diverse profile of solo and community staker participants while benefiting from the technology’s inherent benefits such as increased resilience, distribution, and security. The Simple DVT module is intended to demonstrate that utilizing DVT on mainnet is possible, while furthering the diversification of the Lido Node Operator set on Ethereum and potentially setting the stage for more scalable and permissionless DVT-based modules in the near future.

Solo stakers, community stakers, existing node operators using Lido protocol, and other staking organizations would participate in the upcoming 3rd Lido DVT testnet utilizing Obol and SSV DVT solutions. Following a review of individual and cluster performance, the Lido Node Operator Subgovernance Group (LNOSG), with input from Obol and SSV, would be responsible for finalizing clusters to participate in a mainnet deployment.

The LNOSG would propose the cluster combinations for DAO discussion, and if no significant issues are identified, a committee known as the Simple DVT Module Committee would be responsible for adding these Node Operators to the mainnet registry and increasing validator limits per cluster.

The number of clusters and amount of validators operated per cluster would initially be minimal (e.g. 24 clusters running 5 validators each), leaving time for the Simple DVT Module Committee and DAO to monitor performance and assess the impact to the protocol. If the distributed validators demonstrate performance in-line with the broader Ethereum network, additional clusters could be added to mainnet and the number of validators per cluster would be increased.

After at least three months of mainnet performance comparable to the overall operator set, the LNOSG would also meet to discuss and potentially recommend increasing the number of validators operated by clusters to more meaningful levels (e.g. 100+), considering factors such as cluster performance and the make-up of participants.

The Staking Router technical documentation outlines two reward share components: the module fee and treasury fee. To incentivize Node Operator participation and provide continued support to DVT providers, it is proposed that the treasury fee for the Simple DVT Module is set to 2% and the module fee (paid to Node Operators and the DVT provider) is set to 8%. This reflects the limited economic attractiveness of running a small number of validators with multiple cluster participants and the desire to support continued development of DVT, while taking into account the limited amount of stake the Simple DVT Module will contain and the intent to wind-down the module in the medium-term.

During the discussion period of this proposal, the DAO should also consider the choice of two risk mitigation approaches that will be included in the vote:

1. DAO approval for the current (or future) cover fund to be utilized in the case of material impact to stETH stakers, with a maximum cover of up to 4 ETH per validator.
2. Open an RFP process for interested cover providers to provide risk mitigation options with the subsequent DAO vote to choose between providers.

In summary, this proposal would greenlight the creation of a secondary module on mainnet (contingent upon a successful testnet deployment achievement of minimum success metrics) that would be used to allow Node Operators participating in DVT clusters using SSV Network and Obol Network technologies to use the Lido protocol to run validators. This module would be initially capped at 0.5% of Lido stake, which could be increased later by DAO vote, and be expected to be wound-down and replaced by more scalable modules over time (e.g. within approximately 2-3 years). The module would have the rewards share set at 10%, with 2% allocated to the treasury fee, and 8% to the module fee via for participating Node Operators and DVT providers.

The proposal would also grant the Simple DVT Module Committee the ability to execute Easy Track governance motions (i.e. motions that can be objected to by DAO token holders) for aiding Simple DVT cluster operations following LNOSG evaluations of upcoming DVT testnet trials.

Other Excerpts from the Proposal

(note: some details have been removed for brevity, please see the full proposal for additional detail):

Proposed Process for Cluster Organization

Testnet Round Three

The next round of testnet trials would be organized in a manner to replicate a potential mainnet deployments as closely as possible. The majority of clusters would be in a 5/7 threshold or greater, reflecting the benefits of increased resilience and redundancy larger clusters promote.

To move forward with a mainnet deployment, the following success characteristics should be considered over a 30 to 45 day testing period:

1. Uptime of at least 95.00%
2. Successful block proposal rate of at least 70% (some flexibility is needed due to the early stage of MEV-Boost integration and outstanding questions regarding Holesky performance)
3. Attestation effectiveness per Rated Network comparable with that of the broader Holesky validator set

Given that two separate DVT infrastructures (Obol Network and SSV Network) would underpin the distinct clusters, the success characteristics should be grouped by infra provider and considered independently.

Achievement of these characteristics and a successful on-chain DAO vote to deploy the mainnet Simple DVT module would greenlight a candidate evaluation by the LNOSG for participation on mainnet and the subsequent deployment of Node Operator clusters.

In the event these performance metrics are not achieved, one of two options should be taken:

1. Run another testnet round before deploying on mainnet
2. Analysis of the testnet is presented to the DAO for discussion with an explanation of why specific criteria may not have been achieved, with a subsequent DAO vote to determine whether to proceed to mainnet or not

Mainnet

Operator Additions to the Simple DVT Module

Participants for the mainnet clusters of the Simple DVT Module will be sourced through the third round of Lido DVT testing.

The proposal would grant a new multi-sig committee (known as the “Simple DVT Module Committee”) consisting of contributors from the Lido DAO, LNOSG, Obol Network, and SSV Network teams the ability to create and execute Easy Track motions that allow for the addition of new clusters, activation and deactivation of existing clusters, and changing of cluster properties for the Simple DVT Module

The LNOSG will be responsible for ongoing evaluations of Simple DVT Node Operators and the cluster combinations that will be used to operate validators. Factors considered will include individual Node Operator performance, infrastructure type, and geographic location.

When the LNOSG reaches consensus, the proposed clusters will be transparently presented to the DAO via the Lido Research forum. If no major concerns are raised after a 7 day discussion period, the Simple DVT Module Committee will execute the addition of new Node Operators to the Simple DVT module.

Simple DVT Module Economics

When considering the addition of the Simple DVT Module, the DAO should examine  taking advantage of the ability to adjust rewards share parameters as described in the Staking Router documentation in order to increase the attractiveness for cluster members as well as to compensate the DVT providers for ongoing protocol development and services to the module. The Staking Router technical documentation outlines two reward share components: the module fee and treasury fee.

It is proposed that the total reward share for the Simple DVT module is 10%, with the treasury fee set to 2% and the module fee (shared between the  Node Operators and the DVT providers) set to 8%. This differs from the reward share structure of the Curated Operator Module where the split is 5%/5%, due to the economic differences in DVT cluster operation and the intent to keep the total stake in Simple DVT at a relatively smaller number of validators for a 2-3 year period.

Obol Network Economics

Obol Network will receive rewards via stETH as part of a splitter contract used for reward disbursement to Node Operators. Rewards received will represent 10% of the total share for Obol-based clusters (i.e. 1% of net Obol cluster rewards).

This disbursement method will not require any changes to the core module codebase, and will utilize an Obol Network developed splitter contract based on 0xsplits. This contract will be audited with results publicly shared before deployment on mainnet.

Node Operator participation on the Obol Network does not currently require service fees, so no additional tokens are involved in the operation of the relevant clusters.

SSV Network Economics

Usage of the SSV Network protocol requires Node Operators to pay SSV Network Fees and to deposit initial collateral denominated in the SSV token as outlined in the SSV Network technical documentation to operate validators using the protocol.

SSV Network will receive rewards denominated in the SSV token via SSV Network Fees. As outlined in the SSV [DIP-11] Mainnet Proposal, the SSV Network fee is currently 0.5% of Ethereum staking rewards. This will increase to 0.75% after 365 days pass from the launch of the initial configuration, and increase to 1% 730 days after the launch of the initial configuration.

Node Operators participating in SSV based clusters will receive an additional 1% of the staking rewards (8% total) that will be used to cover ongoing SSV Network Fees. In addition, pending the SSV DAO grants committee’s approval, a grant will be provided to a multi-sig of SSV and Lido DAO contributors that will be responsible for allocating SSV tokens to clusters for covering the costs of the liquidation collateral and SSV network fees required for the first year of module operation, not exceeding 2,500 SSV (equals an optimistic estimation of 50 clusters running 100 validators each). If approved by the SSV grants committee, after the first year of module operation, the combined multi-sig of SSV and Lido DAO contributors will return any excess SSV tokens to the SSV DAO treasury.

Members of this multi-sig would be determined pending the approval of the SSV grants committee to process the grant, following the processes described in the Lido DAO Ops Multisig Policy, i.e. it would include at least 3 signers with a 50%+ threshold, have a dedicated forum post containing a stated purpose and operating rules, include the wallet address and participant addresses, and each participants would “apply” by sharing proof of address ownership. This forum thread will be created by the Lido DAO Operations Workstream and be cross-linked to the Simple DVT Module proposal thread.

This disbursement method will not require any changes to the core module codebase.

Associated Technical Risks & Mitigation

Option 1: Use the existing cover fund to mitigate risk

With 6,240 stETH currently in the cover fund vault contract, the risk to Lido stakers can be mitigated in all but a catastrophic slashing event (that would have much further impact) or if all clusters were to go offline permanently (unlikely considering the curation process for this proposed module, and the expected rollout of triggerable exits (EIP 7002) within the next year).

Of note, a discussion regarding a longer-term Surplus Management Framework has begun, which over time could provide additional cover via DAO revenue.

Option 2: Source third-party cover

An open RFP process is held to source cover via a third-party provider for up to e.g. 4 ETH per validator. This process includes public proposals for the DAO to consider from these providers, and if this option is chosen, a subsequent DAO vote to select the provider.

Two parties interested in providing third-party cover, Chainproof and Nexus Mutual, have responded to the forum thread sharing proposals to offer slashing cover for the Simple DVT Module.