In 2023, few crypto stories have been as enduring as Ethereum staking. With a dearth of new DeFi use cases and a wave of hacks dampening enthusiasm for untested smart contracts, staking has become a refuge for many. Tens of billions of dollars are locked in the Ethereum staking contract, largely through liquid staking protocols such as Pool And Rocket.
As staking has grown, the liquid staking tokens it has released, such as stETH, are used in DeFi, providing users with additional yield. Meanwhile, the development of staking protocols provides additional utility while providing a way to secure Layer 2 networks. Now, with the launch of SSV.network’s mainnet, the final piece of the staking puzzle – DVT – is about to be implemented.
DVT Debuts on Mainnet
Distributed Validation Technology (DVT) is a smart solution that allows a single Ethereum validator to be controlled by multiple operators. Developed by the founders of SSV networkand used by a number of emerging DVT protocols, the technology has been hailed as a breakthrough in decentralizing Ethereum while providing validators with additional protection against shrinkage risks, since the responsibility for maintaining availability can now be shared.
Currently, each Ethereum validator runs on a single node. Most of the time this configuration works fine, but there are edge cases where a node may go offline for various reasons. This may result in a penalty to the node operator, as maintaining uptime is one of the conditions for participating in Ethereum staking. Using DVT to grant multiple operators control of a validator also provides redundancy, allowing entities in different physical locations to control a node. On September 14, SSV.network launched its mainnet, providing the Ethereum ecosystem with the first example of DVT in action.
From paper to production
Distributed validation technology began as a research paper created by members of SSV.network in collaboration with members of the Ethereum Foundation. At the time, the technology was billed as SSV (Secret Shared Validators), hence the name SSV.network. When conceptualizing DVT, its creators aimed to improve network decentralization, fault tolerance, and promote greater diversity among staking providers.
Building networks upon networks has been a recurring theme within DeFi over the past couple of years, as evidenced by the proliferation of Layer 2 and Layer 3 chains that derive security from a Layer 1 such as Ethereum. SSV.network adds another layer to Ethereum, interacting with network validators and monitoring KeyShare assignments. The SSV protocol takes a validator’s private key, encrypts it, splits it, and assigns it to multiple nodes. This distributes responsibility for managing the validator, while ensuring that no single entity can control the procedures.
The Eth2 staking contract is dominated by a small number of staking pools, including Coinbase, Binance, and Lido. While there is no indication that any of these entities will act against the interests of the Ethereum community, it is healthy to reduce their control over the staking industry. DVT has the potential to further decentralize Ethereum, ensuring that the network is not dependent on small sets of validators. As SSV.network integrates more Ethereum validators, the distributed validation technology will finally be tested at scale.
Disclaimer: This article is for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.