As of June 2023, ~20% of the total ETH supply is tied up in staking or in the activation queue. While this figure may seem substantial, it pales in comparison to the average of approximately 60% seen in the largest Proof-of-Stake (PoS) blockchains. This disparity suggests that we can anticipate a sizable influx of ETH moving toward validators in the foreseeable future. Indeed, it appears that the staking supercycle is in full swing.

Lido Emerges as a Dominant Player

LSDs now represent 37% of all stake, a marginal rise from the 35.8% pre-Shapella. The primary beneficiary in this space has been Lido, the leading LSD issuer. Attracting the most considerable amount of nominal stake post-Shapella, Lido now accounts for ~32% of all staked ETH.

Since withdrawals became possible, more than 445K ETH has been withdrawn from the protocol. The lion's share of this stake (97%) belonged to the bankrupt lender Celsius, representing about 7% of Lido’s pre-V2 deposits.

Despite the positives, Lido's current setup doesn't eliminate all risks, particularly concerning the influence of LDO holders over the validator set. This power concentration could potentially jeopardize the health, decentralization, and credible neutrality of Ethereum as a whole.

The Lido community has recognized these issues and is taking measures to mitigate them, such as introducing stETH governance and working towards implementing a staking router in Lido v2. At its core, Lido V2 lays the groundwork for the protocol to transition from a single, authorized validator group to incorporating various unique validator subgroups, referred to as modules. The primary infrastructure facilitating this transformation is the staking router, responsible for determining the distribution of new user deposits to various modules. Initially, the Lido DAO will determine the target proportion of active Lido validators that each module can accommodate. Although no specific timeline has been disclosed for Lido V2's activation on the Ethereum mainnet, it's anticipated to be rolled out in stages. Prioritization is expected to be given to withdrawal functionality over the full launch of the staking router.

Nonetheless, it is crucial that the community continues to strive for stake diversification by easing solo staking and creating, as well as growing, permissionless, governance-minimized liquid staking solutions.

But rather than hope Lido fixes its issues, users can look at LSD alternatives. Let’s take a look at some Lido competitors.

Coinbase (cbETH)

Coinbase, one of the world's leading cryptocurrency platforms, made a significant announcement in August 2022, revealing its entry into the Liquid Staking Derivative (LSD) market with the introduction of its proprietary Ethereum staking product, cbETH. This strategic move underscores a central concern about the dominance of Lido, another key player in the LSD landscape. As articulated in Coinbase's whitepaper, the goal is to foster a robust and competitive environment, offering a range of innovative solutions to enhance Ethereum's security.

Coinbase has strategically adopted the cToken model, an ingenious approach first devised by Compound, another blockchain platform. In this model, cbETH serves as a reward-bearing token. Users can mint or burn cbETH according to the current exchange rate. Over time, the value of cToken appreciates relative to the Ethereum it represents, factoring in staking yields generated by Coinbase validators, potential slashing penalties, and Coinbase's 25% commission fee.

Coinbase's decision to adopt the cToken model over the aToken model was deliberate, intending to facilitate easier integrations across the decentralized finance (DeFi) ecosystem. While the aToken model offers clear advantages for users, maintaining a constant 1:1 redeemable rate for the underlying asset, it could potentially introduce future tax liabilities. On the other hand, cbETH offers a lower yield compared to other Ethereum LSDs, a consequence of their 25% reward take rate. Despite these challenges, cbETH has its unique advantages, facing limited competition among centralized exchanges (CEXs) and catering to a distinct user base from decentralized protocols.

The strategic positioning of cbETH boils down to two primary factors: an intuitive user interface bridging the gap between on-chain activities and non-cryptocurrency power users, and a large user base with 8.5 million monthly transacting users and 108 million verified users as per the company's most recent quarterly report.

As of now, cbETH has climbed to the second position in the LSD supply ranking, boasting a 17% market share. Coinbase has an upper hand in pocketing a larger slice of the staking rewards because it bears the custody responsibility on behalf of less crypto-savvy investors and institutional capital. Being the most regulated exchange, based in the US, and publicly traded, with a strong brand, the odds of their margins being compressed in the next 1-2 years are relatively low. Unlike its decentralized counterparts that utilize a governance token to allow investors to participate in revenue growth, Coinbase does not follow this model.

Rocket Pool

Rocket Pool is a decentralized Ethereum staking pool that was created with the purpose of supporting small-scale ETH stakers and promoting decentralization at the Ethereum staking level. Launched in late 2016, it underwent several public betas as “ETH2” was being developed. Rocket Pool's ultimate goal is to become the leading staking infrastructure for Ethereum.

The infrastructure of Rocket Pool consists of three core components: Smart Contracts, Smart Nodes, and Minipool Validators. It also utilizes a dual-token model (RPL and rETH) to align network incentives. The project boasts unique features such as low deposit requirements, deposit safety mechanisms, and MEV smoothing. Deposits can be locked for 6, 9, or 12 months, offering the potential for an annual return of up to ~6.4% in ETH and variable RPL rewards for node operators or approximately ~5% A.P.R. for ETH stakers.

Read the full breakdown of Rocket Pool’s design and RPL token here.

FrxETH

Frax's entry into the ETH staking landscape in late 2022 introduced a unique two-token design that sets it apart from conventional staking derivative models. When users stake ETH through Frax, they receive frxETH, which acts as a stablecoin loosely pegged to ETH. In contrast to other liquid staking derivatives, frxETH does not accumulate value from staking rewards. Its behavior is very similar to wrapped ETH (WETH).

Frax has also introduced sfrxETH, a token that represents a deposit receipt in an ERC-4626 vault receiving all profits from Frax’s Ethereum validators. A notable aspect of this design is that depositors do not automatically receive staking rewards. Instead, they must actively choose between sharing in the protocol's staking rewards through the sfrxETH vault, or trying to earn a higher return on their frxETH elsewhere, such as on Curve.

Frax's Unique Two-Step Staking Process

Minting frxETH: Users deposit ETH into the Frax protocol to mint frxETH (Frax ETH). All the ETH exchanged for frxETH is staked by Frax. frxETH, however, does not accrue staking rewards like other liquid staking tokens (LSTs) such as Lido’s stETH or Rocket Pool’s rETH. Instead, it is pegged by Frax at a 1:1 redemption rate with ETH.
Choice Between sfrxETH or Curve: From this point, frxETH holders have two options:
- They can deposit their frxETH into an ERC-4626 vault and mint sfrxETH, an LST that does accrue staking rewards.
- Or, they can deposit their frxETH into the frxETH/ETH liquidity pool on Curve to earn rewards paid out in CRV, CVX, and FXS tokens.

Because frxETH holders have these two competitive options to earn significant rewards, the staking rewards earned by Frax are divided among fewer users, resulting in a higher rate of rewards for sfrxETH holders compared to other LSTs.

Earning Higher APR With Frax

sfrxETH yields ~6.5% a year, higher than wstETH (Lido) at 5% and Rocket Pool at 4.4%. This higher yield is because frxETH does not need to be staked in the validator nodes, and all the yield from all the frxETH that are not staked is given to sfrxETH. Therefore, the less frxETH is staked, the higher the APR for sfrxETH.

Frax is a significant holder of Convex Finance’s CVX token, giving it considerable influence over Curve's gauge system and the ability to earn a higher yield on Convex Finance by voting for more incentives to be directed to their frxETH LP tokens. Frax can direct CRV and CVX rewards to its frxETH / ETH Curve pool, providing an alternative for frxETH holders who decide to forgo staking in the sfrxETH vault. This option benefits sfrxETH holders as it increases their share of the protocol's total ETH staking rewards.

Holders of frxETH have two options:

Mint sfrxETH to earn ETH staking rewards: By depositing frxETH into an ERC-4626 vault, users can mint sfrxETH and start accruing staking rewards. This process is comparable to traditional ETH staking in terms of yield generation.
Provide liquidity on Curve for CVX, CRV, and FXS rewards: The alternative is to pair frxETH with ETH on Curve to earn token rewards in CVX, CRV, and FXS. However, this strategy does not provide validator rewards in ETH, thus differentiating itself from traditional ETH staking. By providing this alternative option, Frax encourages a more dynamic environment where users can choose, or even rebalance between, whichever strategy is currently most lucrative.

The advantage of this model is that all frxETH deposits are staked by the protocol, but only those who opt for sfrxETH receive the ETH staking rewards. This system allows Frax to maintain a competitively higher yield for sfrxETH compared to other LSDs. Holding frxETH without providing liquidity does not yield any rewards and can best be compared to holding WETH.

Frax's revenue from staking is divided into three categories:

90% accrues to sfrxETH stakers: The majority of the staking revenue goes directly to the users who chose to stake their frxETH in the sfrxETH vault.
8% goes to its treasury: This portion of the revenue is set aside for the protocol's treasury. FXS holders will eventually vote on how to distribute the treasury revenue to accrue value to token holders. In the past, the distribution has occurred via FXS buybacks and FXS distribution to veFXS holders.
2% flows to a slashing insurance fund: This small portion of the staking revenue is set aside as insurance to cover unforeseen issues and mainly exists to keep frxETH overcollateralized.

As of your note, Frax operates 1,848 ETH validators. However, in the future, governance will introduce a more decentralized architecture where independent validators can be added, further promoting the protocol's growth and decentralization.

Frax also has its own lending product, allowing it to retain the lending revenue generated by users borrowing against their sfrxETH collateral, thus growing the Frax treasury.

Entire Step-by-Step Process

This analysis delves into the intricacies of a prominent workflow, elucidating the process of depositing Ethereum (ETH) into the frxETHMinter contract, the generation of frxETH tokens, and how these synthetic tokens are utilized for income generation and rewards distribution.

Starting from the deposit process's initiation, a user sends their ETH to the frxETHMinter contract via the submit() function. In response, the contract issues the user an equivalent quantity of frxETH tokens, which are synthetic equivalents of ETH akin to Wrapped Ethereum (WETH). A salient point of note here is the price constancy of frxETH in relation to ETH, which remains static at a 1:1 ratio, barring conditions of insufficient liquidity on Decentralized Exchanges (DEXs).

As the accumulated ETH in the contract reaches a threshold of 32, automated bots dedicated to the FRAX protocol run the depositEther() method. This function interacts with the getNextValidator() function of the OperatorRegistry contract, where information about available validators is fetched. Following this interaction, the contract deposits the ETH into the DepositContract address, providing crucial arguments such as the public key, withdrawal credential, signature, and deposit data root of the selected validator.

To provide some historical context, the DepositContract contract, serving as the primary contract for ETH staking, was established by the Ethereum Foundation on October 14, 2020. The addresses of validators find their place in the OperatorRegistry contract via the protocol's governance mechanism. Once the DepositEvent is identified on the DepositContract contract, the consensus layer activates the respective validator, enabling the node operator to initiate the validation process.

Subsequently, users can start generating income from staking by trading their frxETH tokens for sfrxETH tokens via the sfrxETH contract. This contract implements the functionalities as laid out in the ERC4626 standard. Validators who contribute to the block validation process reap their rewards in ETH. This reward ETH is then sent to the FRX Eth Multisig address, a Gnosis Safe contract designed for secure storage and management of funds.

The FRX Eth Multisig contract then carries out the conversion of the received ETH into frxETH, employing the frxETHMinter contract. The frxETH generated is transferred to the sfrxETH vault. This results in the exchange rate between frxETH and sfrxETH rising, considering the increase in frxETH tokens' circulation while the supply of sfrxETH remains stable.

The syncRewards() method can be invoked by bots or users to facilitate the distribution of frxETH rewards among users, adhering to the ERC4626 standard. The final stage in this workflow offers users the choice to convert their sfrxETH tokens back to frxETH, thus enabling them to realize their profits.

frxETH diagram — A flowchart of ETH to frxETH. Source

Frax's Fees and Risks

Frax takes a 10% cut of the staking rewards, distributing 80% to veFXS holders, and 20% to the insurance pool, with the remaining 90% going to sfrxETH holders.

However, risks exist in the model. While the frxETH/ETH total value locked (TVL) on Curve increases, the incentives get distributed to a larger pool, lowering the APR and potentially deterring new investors from staking their ETH with Frax. But with frxETH market share still in single digits, there is still ample growth potential, and frxETH synergizes well with the rest of the Frax ecosystem, creating additional value for frxETH and FXS holders.

Frax's stablecoin (FRAX) model, which is 90% collateralized by USDC, has proven to be stable, with peg deviations of less than 0.66% in the past three months. Despite potential risks in algorithmic stablecoin models, Frax's deep liquidity on Curve and its partnership to create the Frax basepool help maintain its stability and organic demand. Notably, even during the UST depeg crisis, Frax maintained its peg, which should give confidence to investors.

Below we break down a few identified vulnerabilities, how they can affect users, and why it's crucial to recognize and address them.

An issue was found by an auditor that could allow a dishonest person controlling a node (the computer processing the transactions) to access other users' funds. This issue arises from a specific part of the process called the DepositEvent. During the first deposit of Ethereum (ETH) into the DepositContract, certain details, like the WithdrawCredentials and public key, are set and can't be changed later.

Here's where the problem can occur. If the dishonest person jumps in and executes the deposit function before the LSD protocol does, they can input their own WithdrawCredentials. Even if they only send a tiny amount of ETH (like 1 ETH), their credentials will remain in effect for the main transaction, which involves 33 ETH. This means that these funds will be sent to the dishonest person's address, affecting 32 other users. Interestingly, this vulnerability was first noticed back in 2019.

There are also penalties, called "slashing penalties," for any validator (the person validating the transactions) who breaks the consensus rules. The least penalty is 1/32 of the balance of the offending validator. If more than one validator breaks the rules, the penalty depends on the number of offenses within 4096 blocks of transactions (also known as "epochs") since the first violation. These penalties are important because they encourage people to follow the rules.

But these slashing penalties can lead to another problem. An auditor found that if the number of ETH falls due to these penalties, frxETH, a kind of synthetic ETH, could become worth less than real ETH. This is a big issue because synthetic and real ETH are supposed to be worth the same.

Finally, another vulnerability related to the potential centralization of power was identified. With the FRAX contract, the owner could add or remove validators, assign the Minter role for creating frxETH, and more. Because there's so much value in LSD protocols, it's important to make sure that one address doesn't have the power to control everything.

In conclusion, understanding these vulnerabilities and working towards solving them is vital for anyone involved in cryptocurrency. They provide a key example of why vigilance, transparency, and knowledge-sharing are the cornerstones of a strong, resilient, and trusted cryptocurrency ecosystem.

V2

Stakewise

StakeWise, a well-established staking protocol, is currently undergoing a significant metamorphosis. Traditionally using a two-token model, the protocol is on the brink of introducing StakeWise V3, an upgraded version that will employ a modular structure enabling users to stake into distinct vaults.

V3

StakeWise V3's modular design presents several distinctive advantages over more monolithic staking protocols such as Lido, Coinbase, and Rocket Pool. For instance, it allows stakers the freedom to select their own validator. Moreover, the protocol significantly mitigates slashing risk, as losses can be easily confined to a single vault. StakeWise V3 also incorporates slashing protection through overcollateralization. Users can only mint osETH, the protocol's Liquid Staked ETH (LSD), against a portion of their stake.

Furthermore, this innovative design allows validators to join the network permissionlessly with minimal capital requirements and provides enhanced customizability over vaults, including the ability to create whitelisted vaults specifically for institutions.

Despite its potential to disrupt the conventional monolithic order, StakeWise V3 is not without its challenges. It's essentially launching a brand new protocol, which implies significant execution risk. Additionally, its design may add a layer of complexity for end-users, especially for those who opt to "liquify" their stake instead of holding onto the minted NFT representing their deposit. These users may need to manage their collateralization ratio consistently to avert liquidation.

StakeWise currently ranks as the fifth most popular liquid staking protocol on Ethereum. Historically, StakeWise's primary offering was StakeWise Pool, which, similar to Lido, featured a permissioned validator set and a 10% commission on earned staking rewards, shared equally between the StakeWise DAO and the validator set.

However, to counter the growing concerns of centralization risk within the ecosystem, StakeWise Labs proposed a major protocol upgrade in September 2022. Termed StakeWise V3, this upgrade can be dissected into two layers.

Vaults and VLT Tokens

The first layer is a marketplace of "vaults" or deposit pools that grant stakers complete control over where they stake their ETH. Each vault operates as its own pool and can be permissionlessly set up by anyone, ranging from a solo staker to a professional validator operator. The creator of a vault can customize various pool parameters, such as who can deposit, participate as a validator operator, the vault's fee structure, and more.

Stakers can browse through the available vaults via StakeWise's UI and stake with whichever one(s) suit their requirements. To aid users in making informed decisions, each vault is evaluated against a transparent set of criteria and assigned a score within the StakeWise UI.

On depositing to a specific vault, stakers receive a proportional amount of Vault Liquid Tokens (VLT) in return. VLT tokens are repricing ERC-20 tokens, meaning their value relative to ETH escalates as the vault earns staking rewards. VLT tokens are unique to the issuing vault and accrue rewards based on the performance of that specific vault's validator set. Thus, only VLT tokens issued from the same vault are fungible.

The StakeWise V3 transition promises to usher in a new phase in the evolution of staking protocols, focusing on customization and risk isolation. This modular approach could potentially redefine how investors interact with staking, enabling a more personalized and controlled experience in the burgeoning decentralized finance landscape.

Overcollateralized Staked ETH (osETH)

The second layer of StakeWise V3 brings into play the protocol’s liquid staking token, osETH, or overcollateralized staked ETH token. Each osETH represents a fraction of all the ETH staked in StakeWise V3 validators. By design, osETH value grows over time as staking rewards are collected, which means simply holding osETH earns ETH rewards for the user.

osETH's design goal is to streamline staking: acquire osETH to start earning staking rewards and convert it back to ETH to cash out your deposited and earned rewards. When new rewards are secured by StakeWise V3 validators, the total ETH in the validators increases, enhancing the value of each osETH share. This increase in value, proportional to the amount of rewards earned by StakeWise V3 validators, accurately mirrors the staking earnings for osETH holders.

VLT Tokens and osETH: A Symbiotic Relationship

VLT token holders can mint osETH by depositing their VLT tokens into a “collateralization contract”. The value of osETH tokens minted will always be less than the value of the deposited VLT tokens. Each osETH minter will have a unique loan-to-value metric, reflecting the utilization of their VLT collateral in minting osETH.

While VLT tokens accrue rewards based on the performance of a specific vault’s validator set, osETH tokens accrue rewards at the average rate of all validators across all vaults in the StakeWise v3 system. This allows all osETH tokens to be fungible and widely usable throughout DeFi.

Anyone can launch a Vault, stake into Vaults, and mint osETH without restrictions. This design promotes inclusivity, offering access to liquid staking for everyone.

Some examples of its potential use include:

Solo stakers minting osETH against their solo validators
Staking companies' users minting osETH against their validators
Groups of Avado/Dappnode owners running Vaults for others and staking their own ETH to mint osETH for liquid staking
DAOs staking their Treasury into the Vaults they own and operate, and minting osETH against their validators for liquidity on-demand
Centralized exchanges offering liquid staking to their users out-of-the-box

Through these diverse use cases, decentralization is inherently integrated into the design.

Additionally, StakeWise V3 mandates that for every osETH stakers in Vaults want to mint, they must have over 1 ETH. This overcollateralization offers a form of 'embedded slashing protection'. If slashing occurs, a reserve of ETH absorbs the slashing losses before affecting osETH holders. This safeguards osETH holders from losing their principal, making osETH a safer option for staking and DeFi protocol integrations.

However, stakers who mint osETH are still exposed to the slashing risk of the Vaults where they staked ETH. The excess collateralization ensures that other osETH holders are not affected by this risk.

osETH can be obtained in two ways: by purchasing it from the market or by minting it by staking into any of the Vaults. Each method offers distinct benefits.

Those who buy osETH from the market enjoy the full benefits of embedded slashing protection and diversification. This is similar to purchasing DAI to transact in stable coins. When done staking, users can simply sell osETH back to the market, typically at a higher price than they bought, due to accrued ETH staking rewards, thus making a profit from staking.

Stakers who mint osETH from various Vaults have the advantage of selecting a specific Vault to stake their ETH, offering controlled risk exposure and potentially a higher staking yield. Those who run their own validators for staking (like solo stakers, DAOs, CEXs, and staking-as-a-service companies) might prefer to mint osETH from their Vault rather than buying it.

Swell

Swell Network is a non-custodial liquid staking protocol, sets a unique precedent by streamlining the process of participating in Ethereum staking. By linking staking yields and DeFi opportunities in one accessible platform, it revolutionizes how users interact with digital assets.

At the core of its offerings is Liquid Staking NFT, which allows users to stake their ETH and receive the Swell variant, swETH, secured by swNFT. This process presents an opportunity for users to gain higher returns in a non-custodial and secure way. In line with this innovative approach, Swell Network extends the advantages of Staking 2.0. Users' swNFT not only encapsulates their swETH but also provides opportunities for compounding through the Swell Vaults. This approach optimizes the return potential on their ETH holdings.

Furthermore, Swell Network introduces an amalgamated solution for acquiring higher yields. By allowing users to stake and deposit their digital assets into a Swell Vault, Swell efficiently maximizes the compounded yield across DeFi. Echoing the democratic ethos of the blockchain, Swell Network offers a permissionless operating system. This system allows anyone to act as a node operator on the Swell Network, commencing with a minimum of 16 ETH to gain higher returns.

Furthermore, it fosters a non-custodial staking method through Swell's smart contracts, a novel application of atomic transactions. This grants users complete autonomy over their keys and crypto holdings, further enhancing the security and control over their assets.

Lastly, the Swell Network is underpinned by a community-driven ethos. It empowers its community to steer the future of ETH staking and actively participate in the governance of Swell. This democratic approach fosters a collective vision for Ethereum's evolution, serving the interests of stakers, node operators, and the broader ecosystem.

This emphasis on a community-led directive is realized through the Swell Network DAO, which enshrines the protocol's commitment to a permissionless, non-custodial, and liquid ETH staking philosophy. Through these distinguishing features, Swell Network is reshaping the way users interact with, invest in, and benefit from the dynamic world of cryptocurrency.

Primarily, Swell Network enhances the user experience by merging two critical processes. It allows users to stake Ether (ETH) and, in return, withdraw a Swell variant (swETH). The users can subsequently deposit their swETH into vaults. What these vaults offer is a refreshing and efficient usage of swETH. This includes adopting effective yield-enhancing strategies and extending opportunities for liquidity provision. Beyond these, the vaults can be employed as a source for collateral in borrowing, or alternatively as a lending source where tokens can be loaned out.

Moreover, the striking feature of Swell is its ability to provide an economical staking option. Contrasting with the conventional 4% annual percentage yield (APY) for staking ETH, Swell offers a more affordable option. It also dismantles the formidable barrier of a minimum 32 ETH stake, an amount needed to establish a validator node on Ethereum. By diminishing this requirement significantly, Swell expands the sphere of staking to include a wider audience, chiefly retail participants, who can now earn rewards with a small quantity of ETH.

Yet, the worth of the SWELL token remains uncertain, influenced heavily by initial selling pressure post token generation event (TGE). But the zero-fee policy and absence of a minimum deposit make Swell an enticing proposition. This is evident in its constantly augmenting total value locked (TVL). However, the extent to which this liquidity and prospective value will accrue to SWELL remains a question.

Currently, SWELL will be deployed for governance via delegate voting and liquidity mining. Despite the potential of drawing impressive numbers initially, this may wane over time as governance alone often doesn't suffice to stimulate demand for the token. Speculatively, the introduction of a fee switch allowing SWELL holders to stake tokens and access the protocol's fee revenue may be expected. Yet, this could be a distant possibility.

Meanwhile, Swell faces the significant challenge of competing with established players like Lido and Rocket Pool. These veterans, deeply rooted in DeFi and the broader ecosystem, have leveraged the flywheel effect. The effect signifies the powerful cycle where increased integrations and liquidity foster demand, thereby leading to further integrations and liquidity.

For Swell to effectively contest, it must flawlessly execute its distinctive features and assertive integration strategy with other DeFi protocols. Even as the protocol incentivizes swETH liquidity through an ongoing program, successful execution of a game-changer or a "silver bullet" will be pivotal. If achieved, Swell could draw marginal ETH inflows and ignite a competitive flywheel effect.

One possible silver bullet is the successful implementation of Diversified Validator Technology (DVT), making Swell the pioneering project to do so. This could lower the collateral requirement to a single ETH for independent operators, thereby unlocking capital efficiency and possibly luring a multitude of independent validators.

However, a crucial aspect to be noted is that while Swell may offer lower commission rates initially, the overall rates across Liquid Stake Tokens (LST) protocols could trend higher than the industry norm. This is primarily due to the potential impact on the profitability of node operators.

In conclusion, the success of Swell hinges on its distinct features, execution of its integration strategy, and the effective implementation of a game-changer like DVT. Its path is paved with challenges and opportunities that will shape its position in the competitive landscape of cryptocurrency.

DVT

Distributed Validator Technology (DVT) is similar to multisig for validators, as it distributes validator keys among multiple distinct nodes. DVT enables several nodes to share the responsibilities of an Ethereum validator, boosting fault tolerance and resiliency. In doing so, it increases validator uptime and reliability by decentralizing failure points and decreasing the likelihood of slashing events. With DVT, solo-stakers no longer need to worry (as much) about maintenance concerns that might reduce their long-term gains. SSV, Obol, and Diva are the three leading DVT options, and both are live on testnet.

ssv.network

Based on the Ethereum blockchain, ssv.network offers a unique, decentralized staking infrastructure, largely predicated on the concept of secret shared validators (SSV). Conceptually, SSV and Distributed Validator Technology (DVT) are interchangeable terms. This innovative idea was first proposed in a theoretical discourse by esteemed Ethereum Foundation researchers, Aditya Asgaonkar and Carl Beekhuizen, back in 2019.

The entity spearheading the development of ssv.network is Coin-Dash Ltd, doing business as Blox Staking. The Israel-based organization boasts a team exceeding 25 dedicated full-time members, led by CEO and founder Alon Muroch. Notably, Blox Staking has a history of collaboration with the Ethereum Foundation and ConsenSys, contributing to a research and development group focused on materializing an SSV proof of concept. This collaborative effort received a significant boost with a grant awarded by the Ethereum Foundation in February 2021.

Among the key contributors in this working group were Collin Myers of ConsenSys - who later co-founded Obol Labs - and Mara Schmiedt, the then-Business Development Lead at Bison Trails. Presently, Schmiedt is serving as the CEO of Alluvial, a software development enterprise facilitating the creation of the Liquid Collective, an advanced liquid-staking protocol, while also serving on the board of Obol Labs.

The native token for ssv.network, denoted as $SSV, serves a dual purpose. Primarily, it is used for governance within the SSV DAO. Secondly, it functions as the network's payment layer, aligning the interests of all participants. Validators on the network receive $SSV from stakers for their role in managing validators and generating ETH rewards, while stakers, in turn, pay operators in $SSV and receive ETH rewards directly from the Ethereum blockchain.

The $SSV token was originally the CoinDash token (CDT), associated with a data-aggregation platform facilitating crypto accounting, token tracking, and portfolio management. After a cybersecurity incident in July 2017 during its ICO, which resulted in approximately $7.5M of ETH being stolen, the CoinDash team managed to recover the stolen ETH, working in coordination with law enforcement agencies, ensuring that all victims were fully reimbursed with their CDT.

At present, there's a strong possibility of ssv.network launching on the Ethereum mainnet within this year. The network continues to build upon its already robust ecosystem of operators, partners, and grant recipients, attracting more developers to create DVT-based staking apps and protocols on the ssv.network.

The ssv.network team has been running public testnet versions for almost two years, and in March, they announced Jato, their V3 testnet. With plans going smoothly, Jato is expected to transition into the ssv.network mainnet by the end of the year. For more updates on ssv.network’s progress, the community calls are an excellent resource.

Ultimately, for cryptocurrency investors and users, understanding and engaging with innovative projects like ssv.network represents a strategic move to staying ahead in a rapidly evolving digital asset landscape.

Diva

Diva is a Distributed Validator Technology (DVT) Liquid Staking Derivative (LSD) protocol for Ethereum. It provides depositors with a liquid staking token that automatically gains value through staking rewards without the need to manage infrastructure or rely on a central party. The protocol also utilizes DVT with a group of bonded node operators who conduct staking responsibilities using a non-custodial design. In addition, it distributes staking benefits to the members of this cooperative: Stakers, Operators, and the Diva DAO, in order to balance the network's interests.

While other staking projects offer either liquid staking or DVT, Diva is the only non-custodial solution that offers both (albeit Lido is trialing DVT currently).

With Diva, each validator is hosted on a subnetwork of nodes chosen at random. Due to the features of the Diva validator set, only "n of m" signatures are required to rebuild the complete validator contribution signature. Consequently, Diva validators may withstand up to "m - n" failing nodes without affecting validation, making them resilient to periods of multiple node unavailability.

When the Diva staking smart contract reaches 32+ ETH, an event is triggered to generate a new distributed validator that will be detected by all Diva Nodes. Diva Nodes then evaluate their likelihood of belonging to this distributed validator. The nodes then execute (or do not execute) a Distributed Key Generation round to generate a new validator key.

Each group of Diva Nodes proposes to the Diva Smart Contract a validator public key (publicly auditable process). If they have the highest score, they may register the newly constructed distributed validator and carry out their responsibilities by signing block proposals and attestations.

Economics

One divETH is always representative of one ETH held in the Diva staling contract. If a staker deposits one ETH, they will receive one divETH. divETH is a rebasing token, meaning as staking rewards accrue, the divETH balance increases to represent ETH's underlying value. Balances are updated daily to reflect your ETH staking earnings and can be used similarly to ordinary ETH to earn and lend rewards. There are no minimum deposits or lockup periods.

The Staker is now in possession of 1.01 divETH, 1.02 divETH, etc. divETH cannot be withdrawn from the staking contract until Ethereum mainnet implements ETH withdrawals in the upcoming Shanghai fork sometime in H1 2023.

Obol

Obol Network (Obol) represents an innovative protocol that facilitates the operation of distributed validator (DV) clusters on Ethereum. This protocol is the brainchild of Obol Labs, an entity co-founded by Collin Myers, the CEO, and Oisin Kyne, the CTO. The diverse Obol Labs team encompasses 23 full-time members and 15 advisors, mostly based in Europe and North America.

Myers, prior to the establishment of Obol, has had a prolific tenure at ConsenSys, where he spearheaded global DeFi product strategy for more than three years. A significant portion of his role involved collaborating with the Ethereum Foundation and Chris Battenfield, the then head of product at ConsenSys, currently fulfilling the same role at Obol Labs. Together, they were integral in the development of the ETH Staking Launchpad, a widely utilized resource for validator creation.

Kyne, on the other hand, leveraged his experience as a full-stack developer at ConsenSys to lead the development of Blockdaemon's enterprise-grade Ethereum staking infrastructure, after starting his own software development business in 2020.

Key Innovations by Obol Labs

Obol Labs has engineered four complementary pieces of software that are central to Obol:

Charon: a middleware client that empowers validators to operate in a distributed and fault-tolerant manner. It is the most sophisticated software being developed by Obol Labs.
DV Launchpad: a user interface designed for the establishment and management of DVs.
Obol Managers: a collection of Solidity libraries crafted for the creation of DVs, customized for different use cases, such as DeFi, liquid staking, and fractionalized deposits.
Obol Testnets: a suite of incentivized Ethereum testnets open to the public, allowing operators of all sizes to assess their deployment.

Currently, Obol does not have a token, setting it apart from networks like ssv.network. Nevertheless, there is anticipation that a token will be announced in the late part of this year or early next year. The essence of Obol is rooted in minimizing trust, hence Obol Labs relinquishing control over the protocol by launching a token aligns with this philosophy.

Obol's inaugural DV cluster was launched on the Ethereum mainnet earlier this year, consisting of four nodes operated from home, spread across three countries: Ireland, Estonia, and Canada. More recently, another DV cluster came to life across Australia, New Zealand, India, and South Korea.

These launches signify the alpha phase of Obol. The forthcoming beta phase, expected after Obol Labs brings another 23 DVs on board over the next few months, will transition to Obol V1 by the end of the year. It is anticipated that at least one liquid-staking protocol will integrate Obol's DVT during the beta phase.

Research on Obol V2 is already in progress, with a focus on enhancing the trust-minimization of DVs via advanced applied cryptography and cryptoeconomics. Additionally, expansion plans are being explored for Ethereum layer-2 solutions and Cosmos.

Loading...