How we can help decentralize Ethereum with solo staking vaults. Meet DVstETH
Several weeks ago Mellow announced a new use of vault infrastructure, which fills the gap between native staking on Ethereum and liquid staked tokens. It is possible not only because of Mellow but also thanks to Lido, SSV Network, and Obol.
The new DVstETH vault introduces several key differences compared to existing vaults in the DeFi ecosystem, particularly in functionality, risk management, and user experience. This is a complex concept and in this article, we try to explain how it works and why it may be appealing to users.
DVstETH is a wrapper around the Lido stETH Liquid Staking Token (LST), representing users’ positions in the DVstETH Vault while allowing vault users to reuse their DVstETH token throughout the DeFi ecosystem.
This is not about heterogeneous risk profiles for LRTs or verticalization of restaking, it is about promoting the decentralization of the Ethereum Node Operator set while allowing vault users to tap into stETH rewards combined with points from Mellow and the two leading DVT providers, Obol and SSV Network.
The ultimate goal of this vault is to promote Distributed Validator Technology (DVT)-based technology via the Lido protocol, which will enhance the decentralization, accessibility, and censorship resistance of Ethereum staking. This starts with Lido’s Simple DVT Module, the first module within the protocol where Node Operators run validators utilizing DVT from both Obol and SSV Network.
Benefits of DVstETH:
ETH from the DVstETH vault is targeted for use by validators within the Lido Simple DVT Module. DVstETH represents an LP position of the DVstETH Vault, wherein users receive Lido’s wstETH plus contribute to campaigns of Mellow, Obol, and SSV Network. ETH will be staked to the Lido Simple DVT Module when there is available capacity and no unfinalized withdrawals within the Lido protocol. Vault users receive wstETH rewards as a proportion of their position in the vault. A wide range of Node Operators utilize the Simple DVT Module, with over 200 solo, community, and professional Node Operators running mainnet validators within it. Stake from the DVstETH vault directed to the Simple DVT Module will enhance the decentralization of the Lido protocol by tapping into a set of professional and community node operators. This improves the resilience of the underlying Lido Operator Set and, therefore, wstETH.
Improving Infrastructure Resilience: Stake from the DVstETH vault is targeted to a Lido staking module that provides additional risk management features as Node Operators in the Simple DVT Module run validators using DVT. DVT can provide enhanced client and infrastructure diversity and reduce the likelihood of potential slashing events.
Transparent Validator Performance: Lido protocol-related validators are publicly labeled so that any ecosystem participant can monitor and track their performance. Data sources such as Rated, SSV Scan, and Beaconcha.in can be used to monitor the underlying performance of validators within the Lido Simple DVT Module that are tied to the vault.
Integration with Other Protocols: The DVstETH vault is designed to integrate seamlessly with other DeFi protocols, enhancing its utility and appeal. These integrations can facilitate better liquidity and more opportunities for users to engage with their staked assets. This is to ensure DVstETH functionality within the broader DeFi ecosystem.
Overall, the DVstETH vault represents a way for users to accelerate the adoption of the Lido Simple DVT Module, which enhances stETH by incorporating DVT, offering a greater diversity of Node Operators, additional infrastructure and client decentralization, and better security. These features position it as a more robust option compared to traditional vaults, potentially attracting a wider range of users looking for innovative staking solutions.
How DVstETH works
We have the following actors in the system:
Lido/Mellow multisig — admin multisig that governs the protocol and grants or revokes the admin role. Over time this will be governed by the Mellow DAO.
Stake Bot — an external bot that handles the deposit flow from the DVstETH vault into Lido validators, specifically targeting the Simple DVT Module to the extent possible.
Curator Admin — can convert some WETH to WstETH on the vault balance (in case of excessive WETH on the vault not earning rewards). A Gnosis Safe multisig operated by the Curator (Steakhouse Financial).
Curator Operator — Curator bot / multisig for processing withdrawals.
They are interconnected like this:
How DVT enhances Lido
The DVstETH vault promotes the resilience, decentralization, and security of the Lido protocol by accelerating the adoption of DVT. Here are its key features:
DVT itself
Distributed Validator Technology combined with Distributed Key Generation enhances the security of validator clusters by employing key sharding, active redundancy, fault tolerance, and eliminating single points of failure. These features collectively reduce the risk of slashing, making DVT a significant advancement in the staking infrastructure for Ethereum, and providing a more resilient and secure environment for validators.
Active Redundancy
DVT enables validators to operate with active redundancy. As long as a threshold number of nodes (e.g., 3 out of 4, or 5 out of 7) are online, the validator can continue to function normally. This design ensures that even if some nodes go offline or experience issues, the overall performance of the validator cluster remains intact.
Fault Tolerance
The architecture of DVT enhances fault tolerance by allowing validators to remain operational despite hardware failures or network issues. Since only a subset of nodes needs to be active to produce valid attestations, the risk of penalties due to downtime is minimized. For instance, if a node fails, as long as enough other nodes are online to meet the signing threshold, the validator can continue to attest without interruption.
How does DVT reduce the risk of slashing in validator clusters?
DVT, especially when utilized in concert with Distributed Key Generation (DKG), enhances security by allowing the distribution of validator key ownership and validator operations across multiple operators rather than relying on a single operator. This approach reduces the likelihood of slashing events. By spreading the keys and responsibilities, DVT reduces the likelihood of a single point of failure, thereby enhancing the overall security of the staking process. This also means that as no single node holds the complete key, it is much harder for an attacker to compromise the validator. To successfully execute a slashing attack, a malicious actor would need to gain access to a majority of the key shards, which is a much more complex and challenging task than attacking a single key.
Protection Against Misconfiguration
DVT reduces the risk of slashing caused by misconfiguration or accidental double-signing. In traditional setups, if a validator key is mistakenly run on multiple nodes, it can lead to slashing. With DVT, since the key is split and distributed, such misconfigurations are less likely to result, as the nodes operate independently and do not have access to the full key.
Other Benefits of the DVstETH Vault
Enhanced Monitoring and Audits
The DVstETH vault undergoes rigorous security audits and continuous monitoring. Recent audits by ChainSecurity and additional audits scheduled with firms like OpenZeppelin and Statemind suggest that the vault's security protocols are up-to-date and robust. Enhanced monitoring systems, including circuit breakers, are also in place to detect and respond to suspicious activities in real-time.
Risk Management through Decentralization
By supporting validators that utilize DVT, the DVstETH vault enhances network decentralization, which is a fundamental principle of blockchain security. This decentralization not only helps to distribute risk but also aligns with the broader ethos of the Ethereum ecosystem, which aims to reduce reliance on centralized entities that could be vulnerable to attacks or failures.
Integration with Decentralised Infrastructure
DVstETH vault is designed to integrate with various protocols and services, which can provide additional layers of protection. For instance, the future use of ENS services for interfaces ensures that the vault benefits from proven decentralized hosting and file-keeping, identity management, and secure storage of keys and certificates.
Conclusion
The DVstETH vault allows users to promote the further decentralization of the Lido on Ethereum protocol while simultaneously receiving wstETH rewards combined with points from Mellow, Obol, and SSV Network. Users receive points from the leading DVT providers without having to run the infrastructure themselves.
The newly introduced DVstETH vault benefits the Ethereum ecosystem by supporting its Node Operator set while providing users with access to a novel rewards framework.
DVstETH functions as a wrapper of the most widely used LST, allowing vault users to utilize their DVstETH tokens across the DeFi ecosystem. As we move forward, the collaboration between Mellow, Lido, and other stakeholders will continue to drive innovation, ensuring that Ethereum remains a decentralized, secure, and accessible platform for all users. This collective effort will not only enhance the staking experience but also contribute to the long-term sustainability and resilience of Ethereum's infrastructure.
Discord: https://discord.com/invite/mellow
X/Twitter: https://x.com/Mellowprotocol
Website: https://mellow.finance
Docs: https://docs.mellow.finance
Lido SDVTM page: https://operatorportal.lido.fi/modules/simple-dvt-module
Obol X/Twitter: @Obol_Collective
SSV X/Twitter: @ssv_network