Distributed Validator Technology (DVT): Explained

Distributed Validator Technology (DVT) remains a gray area and somewhat unfamiliar to most users at present. Therefore, in today's article, let's delve into this concept and see if this suite of products has anything noteworthy!

What is Distributed Validator Technology (DVT)?

Distributed Validator Technology (DVT) is a decentralized solution for verifying Validator signatures in blockchain networks. It aims to minimize security risks and enhance activity, optimizing Staking rewards for users.

DVT solutions encode Validating Keys and distribute them across individual Node Operator units within a cluster. This encoding and distribution eliminate the need for node operators to store keys online, as required in traditional operations.

Benefits of DVT

Firstly, DVT decentralizes security risks, ensuring the safety of Validators against authentication attacks.

Secondly, it enhances Validator activity, maximizing rewards and avoiding slashing incidents.

Lastly, it diversifies Validator operations (Clients), reducing dependence on specific software and mitigating network risks associated with high-client bug vulnerabilities.

The Relationship Between Distributed Validator Technology and Liquid Staking

Distinguishing DVT from the popular Liquid Staking: DVT decentralizes key signatures across different Node Operator groups, minimizing Inactive and individual Operator attack risks.

In contrast, Liquid Staking focuses on yield solutions and profit distribution for LST holders.

DVT helps Staking Pool providers solve slash avoidance issues, thereby increasing yield for users.

Optimization of DVT

Is DVT truly optimized? The straightforward answer is no, as nothing in nature is perfect. However, understanding why DVT is not optimized currently reveals the specific areas lacking optimization.

Splitting Node Operator groups into clusters increases operational costs, not advantageous as Ethereum shifts towards higher upgrades (specifically Fast Finality directions). With more complex hardware requirements for Ethereum Validators, increased data and communication messages among Validators could pose challenges for DVT's clustered decentralization approach.

Moreover, if a single successful solution dominates DVT market share, wouldn't we essentially create a second Lido, overlapping the existing Lido layer? This could inadvertently shift initial risks addressed by DVT to the winning network in this space.

This scenario is entirely possible, given that DVT protocols typically manage network governance through an internal project token.

A third limitation is that DVT introduces latency in verification due to the consensus and original signature aggregation required across Clustered Node Operators.

Market Scale for DVT in the Future

Considering positive trends, with <25% of ETH staked on the Beacon Chain, there is substantial potential for Staking solutions (including Liquid Staking).

However, DVT remains a small part of the Liquid Staking market share. Estimating market scale and development potential for DVT solutions is challenging. Notably, Lido Finance's latest trial proposal limits DVT to 0.5% of total ETH staked with Lido, subject to DAO voting for future increases.

The impact of EIP-7514 remains uncertain, significantly affecting Liquid Staking market shares. Currently, EIP-7514 is controversial and not yet officially added to the Dencun upgrade.

Nonetheless, DVT's success does not solely depend on Liquid Staking Protocol market shares. Another validator group that may require DVT is Staking Pool, which holds a significant share.

Product Status

Solutions like Obol Network and Diva Staking are still in testnet stages for DVT technology.

As of writing, the only solution deployed on mainnet is the SSV Network, with 80 Operators and over 2,200 Validators. Furthermore, SSV has transitioned to a new phase of open mainnet for community participation in the network.

Specifically, Lido Finance's Simple DVT product (comprising SSV Network and Obol Network) is expected to officially launch in February-March 2024.

In conclusion, I hope this article has shed light on the somewhat unfamiliar term "Distributed Validator Technology." As always, I'm delighted if this information has provided some value. Looking forward to meeting you again in future articles!