In early September, RocketPool, StakeWise, Stader Labs and other Ethereum LSD protocols launched a joint commitment to limit their market share to no more than 22% of the total pledged volume, aiming to deal with the increasing concentration of the Ethereum pledge market. However, Lido Finance, the market leader with a share of 32%, did not take a position on this, causing controversy in the community.
After the merger, the consensus mechanism of Ethereum has transitioned from PoW to PoS. At the same time, PoS has accelerated the growth of staking solutions such as Lido, and has also accelerated the risk of protocol centralization (about 33% market share).
Crypto KOL Poopman posted on his social platform that Distributed Verification Node Technology (DVT) plays an important role in preventing single points of failure and achieving decentralization, and conducted an in-depth analysis of the related protocol SSV Network.
Basic concepts of DVT technology
DVT stands for Distributed Validator Technology. This technology distributes the validator’s private key across multiple computers to prevent single points of failure, etc. Simply put, DVT can be regarded as a solution similar to multi-signature.
Validator node key: After PoS, the validator node key was introduced. This key is responsible for signing on-chain operations such as block proposals and attestations. However, the keys must be kept in hot wallets. DVT technology protects its operating principle through the following four pillars:
Shamir's Secret Sharing and Threshold Cryptozoology
Decentralized Key Generation (DKG)
Multi-party computation (MPC)
consensus mechanism
Shamir's Secret Sharing: Imagine a graph, assuming an encrypted message is located on the Y-axis, a private key is divided into 3 parts and sent to nodes A, B and C. To decrypt the message, at least 2 parts are needed to connect the line. This is called ⅔ Shamir's Secret Sharing. Simply put, Shamir's Secret Sharing is an algorithm that divides private keys into multiple nodes. Each node holds only a small portion of the key, and no single node can sign a message unless a voting threshold (such as 3/4 or 5/7) is reached.
In addition, PoS uses BLS signatures, allowing multiple signatures to be aggregated into a single signature. Therefore, when a node signs a transaction, the BLS signature combines all the signatures into a signature that represents the validating node's private key.
Decentralized Key Generation (DKG)
The reality is that no party should know the private key of this validator node, because this is very insecure for the validator. In this case, DKG tries to solve this problem in the following ways:
Each participant makes a secret share.
All these shares are then added together to get the final result.
Therefore, DKG is a process of creating a key share and distributing it to each node. This process requires each participant to calculate a key and provide it with "randomness" so that no party can learn the user's private key.
Multi-party computation (MPC)
MPC is an important pillar of DVT. MPC allows operators to sign messages using only their secret share without having to reconstruct the full private key on any single device. This helps reduce the risk of private key centralization.
Consensus mechanism: In order to reach consensus on a certain block among nodes, the algorithm IBFT selects a node as the block proposer and shares the block with other nodes. If consensus is reached, meaning that approximately 66% of the nodes agree that the block is valid, the block is proposed to be packaged. However, if the block proposer goes offline due to hardware/software issues in DVT, the IBFT consensus will select another DVT node as the block proposer within 12 seconds, and the fault tolerance mechanism takes effect. This ensures the robustness of the blockchain to a certain extent.
Operation of SSV Network
What is SSV Network? SSV stands for Secret Shared Validators, more recently known as DVT. The concept of SSV originated from a research paper in collaboration with members of the Ethereum Foundation and aims to decentralize validator tasks among a group of nodes.
How the SSV Network works: SSV distributes the validator’s private keys (or shares) among a group of nodes, ensuring:
There is no centralization of keys: one node does not need to trust another node to function
In addition, SSV has a token and a P2P market.
Purpose of SSV tokens: Since the SSV network provides higher security and decentralized services, users must pay SSV fees to the network and operators for incentives. There are two main players in the SSV network: stakers and operators. Stakeholders can select 4 operators from the list, then deposit SSV to these operators and earn ETH directly on-chain based on the term of their choice (e.g. 1 year, 6 months).
Each operator can set its own fees and compete with other operators in the P2P market. What’s more, operators do not hold stakers’ ETH assets or earned rewards, as their role is simply to maintain and operate validators on behalf of stakers.
SSVDAO
SSV token holders can participate in the governance of SSV DAO and make the following decisions:
Design and adjust network charges
Operator Rating (rating based on operator performance)
Development and decision-making of any protocol
SSV Feasibility Insights
First, SSV Network is expected to see greater adoption. This will lead to more stakers depositing SSV with operators to obtain higher security and decentralized services, leaving less circulating supply on the market. In this case, the most intuitive action is to trade SSV on the secondary market. Alternatively, you can provide liquidity for the SSV-ETH pair on Uniswap (0.3% fee tier) and earn approximately 64% APR/$1.76 per day per $1,000 of liquidity position.
On the other hand, you can also consider running nodes in the SSV network and earn SSV as service fees. The more key shares you manage, the more SSV you earn. However, operators need to note that appreciation in SSV does not necessarily lead to higher revenue. In fact, when the price of SSV increases, operators often lower fees to attract more stakers. Likewise, when the price of SSV drops, they also increase their fees. The dynamics of this fee are also affected by how many stakers and operators there are in the market.
Summarize
DVT technology provides a decentralized and highly secure solution through the four pillars of Shamir's Secret Sharing, decentralized key generation, multi-party computing and consensus mechanism. As a practical application of DVT, SSV Network further ensures the decentralization and security of the Ethereum pledge market. As more stakers and operators join, SSV Network is expected to play a greater role in the future blockchain ecosystem.