Staking service Lido Finance will implement distributed validator technology.
Lido will adopt Distributed Validator Technology and start researching a scoring system that allow anyone to become a validator in Lido without permission and empower stETH holders to veto any decision that will be made. https://t.co/jqYVyrX29w
— Wu Blockchain (@WuBlockchain) April 15, 2022
There are also plans for a scoring system that would allow anyone to become a validator in Lido without permission.
The initiative is part of the mission to lower barriers to staking Ethereum 2.0, as well as increasing decentralisation and network security.
According to Dune Analytics, over the last 30 days 75% of new participants were provided by Lido Finance. This dynamic has raised concerns about growing centralisation.
The project involves 21 validators. Each accounts for less than 2% of total staking tokens. Lido Finance aims to reduce this to 1%.
The validator set is continuously updated by experts to minimise risks for users.
Criteria include:
- geographical and jurisdictional diversification;
- no physical or legal ties between validators;
- use of own nodes;
- distribution between own and cloud infrastructure;
- adoption of best industry practices in security and key management;
- a direct link between operators’ financial results and the service’s popularity;
- long-term alignment with Ethereum and a decentralised economy.
Such an approach is not without drawbacks and is seen as a temporary measure. Lido Finance intends to refine it, lowering barriers for node operators and creating incentives to encourage “good conduct” and minimise governance risks.
The distributed validator technology will unite the latter into independent committees. These structures will jointly propose and attest to blocks, significantly reducing the risk of inefficiency or incorrect behaviour by any single participant.
This step will enable validators currently viewed as “unreliable” to join the service. They will directly contribute to the decentralisation of the group, without creating risk to Lido or Ethereum participants.
A second improvement is the creation of a node-operator score, composed of a range of metrics. The resulting score will influence the distribution of rewards.
Its introduction will move away from the current binary approach (trusted and unreliable providers), and help improve their performance.
The project aims to improve governance within the DAO. In particular, it envisages new mechanisms to prevent unauthorized changes to Lido. Among them are temporary freezes and granting a veto right to the quorum of stETH holders.
According to DeFi Llama, Lido with a TVL of $10.2 billion ranks fourth among Ethereum-based DeFi protocols. Over the last month the figure rose 40.3%, while across the ecosystem as a whole — 8.5%.
As noted, Andreessen Horowitz invested $70 million in Lido Finance.
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