Decentralization on Horizon: Lido's 2024 Plans for Distributed Validator Tech

• Ethereum's Future in the Hands of Validators
• The Vulnerability of Centralization
• Distributed Validator Technology to the Rescue?
• The Hurdle of Decentralization
• Understanding Distributed Validator Technology (DVT)
• The Upcoming Year for DVT

Ethereum's Future in the Hands of Validators

Ethereum$2,315 -2.42%, a leading blockchain network, faces a critical security risk as thousands of its validators, which control the addition of new transaction blocks, continue to centralize. A limited number of these validators control most of the power, risking stability and security of the blockchain.

A new block of transactions is added to Ethereum every 12 seconds by validators, be they companies, individuals, or collectives. To do so, they stake a minimum of 32 ETH, currently valued at approximatley $70,000, for a steady yield. Lido, the Ethereum's largest validator, controls approximately 32% of all staked ETH, risking the blockchain's stability should it increase its share.

The Vulnerability of Centralization

The problem lies in the centralized nature of most validators, which are single computers or servers running a few versions of node-running software. This structure increases the risk of bugs, offline computers, and dishonest operators, all of which could potentially harm the entire network.

Distributed Validator Technology to the Rescue?

Distributed Validator Technology (DVT) aims to overlap these risks. DVT spreads operations amongst several parties, thereby reducing the risk of failure and increasing resilience. Despite the talk around DVT solutions, adoption remains low. As per Obol's estimates, less than a single percentage point's worth of ETH is controlled by DVT-based validators. However, this could change in 2024 as more and more platforms begin to adopt DVT.

The Hurdle of Decentralization

The allure of blockchain networks lies in their decentralization, and Ethereum's validator system works towards this goal by distributing power amongst parties based on their staked ETH, providing resistance to outages and maintaining credible neutrality. However, a small group of validators, including Lido, have gradually consolidated a majority of power.

Lido's large presence could have serious implications. Validators choose the transactions and their sequence to be written to Ethereum, giving Lido a considerable control. If Lido were to control 33% of all staked ETH, it could manipulate the chain consensus, potentially stalling all network activity.

Understanding Distributed Validator Technology (DVT)

DVT is viewed as a potential solution to the looming threats of network attacks and power imbalances. The tech operates by distributing the keys to a validator across several nodes, thereby increasing network resilience. If one key holder goes offline, others can fill in to maintain smooth operations.

Validators today are single-engine planes. If a validator goes down, it's offline, said Brett Li from Obol Labs, asserting the benefits of DVT. It's redundancy. You can have two engines, and if one of the engines fails, you can still get where you need to go safely.

The Upcoming Year for DVT

2019 could be a big year for DVT, with multiple platforms such as Obol, Diva, and SSV launching their products and testnets. Lido has also taken its first step towards DVT adoption with the introduction of its Simple DVT Module and, if successful, this could set a new standard for everyone.

While large institutions might continue running their validators in-house, solo-stakers and community-run collectives like Lido could adopt DVT due to its simplicity and ideological alignment. In two or three years you'll see hopefully between a third or half of validators running on DVT, estimated Alon Adir, head of global PR at DVT firm SSV. Brett Li from Obol Labs echoed this sentiment, predicting that in the long run, 80% of validators will run on DVT-based infrastructure.

Edited by Jonathan Stoker