Research
Lido SSV vs Lido Obol
Compare Lido SSV and Obol's approaches to Ethereum staking, focusing on decentralization and security.
Author
Imperator
Date
Oct 12, 2024
This article delves into the key differences between Lido SSV vs Lido Obol, comparing their distinct approaches to scaling and securing Ethereum’s staking operations.
Lido DAO is implementing two innovative solutions to enhance decentralization and security in Ethereum staking: SSV Network and Obol Network.
What is Lido ?
Lido is a decentralized autonomous organization (DAO) that offers a liquid staking solution for Ethereum, allowing users to stake their Ether (ETH) without locking assets or maintaining complex staking infrastructure.
Additionally, Lido is positioned to benefit from innovations like Karak restaking and Symbiotic restaking.
By issuing staked Ether tokens (stETH) to users, Lido enables participants to earn staking rewards while retaining liquidity for use in other decentralized finance (DeFi) activities.
In its traditional staking model, Lido delegates staked ETH to a curated set of professional node operators who run validators on behalf of users and are selected by the Lido Node Operators Sub Governance Group (LNOSG). While this model provides convenience and security, it presents challenges related to centralization and potential single points of failure.
Relying on a limited group of operators can lead to network vulnerabilities if any operator experiences downtime or malicious activity. These challenges are compounded by the importance of decentralization for network resilience and adherence to Ethereum's core principles.
Lido SSV vs Lido Obol: Where does the debate come from ?
Lido prioritized scalability over a more complex decentralization process, concentrating validators among select professional node operators.
In some ways this strategy was too successful, giving Lido ⅓ of total staked ETH, creating a centralized validation process that poses risks to Lido stakers and the broader Ethereum network.
Introducing Distributed Validator Technology (DVT)
To address these concerns, the Lido DAO is in the process of introducing Distributed Validator Technology (DVT) through the Simple DVT Module (sDVTm), which aims to decentralize operations and enhance security by integrating solutions from both Obol and the SSV Network
How DVT works ?
DVT operates similarly to a multisig for validators, where multiple node operators manage distinct nodes that work together, communicating and reaching consensus to fulfill validator duties.
This approach enhances validator resilience by mitigating single points of failure, decentralizing operations across infrastructure and geographical locations, and bolstering security through Distributed Key Generation (DKG). The Simple DVT Module also opens the door for solo stakers, community stakers, and existing node operators to participate in Lido.
Lido Obol vs. Lido SSV: Different approaches to DVT
The choice of Obol vs SSV makes sense as they are not only the most well established DVT solutions but also offer differentiated approaches to enhancing decentralization, security, and performance in Ethereum staking.
Lido SSV provides a more streamlined, operator-centric solution focused on scalability and ease of use, while Lido Obol embraces a deeper decentralization ethos by minimizing on-chain dependencies and distributing the validation process to operators.
Although both systems have shown strong validator uptime and security, understanding the trade-offs between SSV's efficiency and Obol's security is crucial for shaping a perspective on Lido’s long-term outlook.
What is Lido SSV ?
SSV Network was founded as part of a joint research project with the Ethereum Foundation in 2019. Blox Staking, the organization behind SSV, began developing the technology after receiving a grant from the Ethereum Foundation in early 2020.
Key Generation in SSV: Key Splitting vs DKG
In terms of network operations, there are two ways to generate keys when using SSV, the first is key splitting, which splits a validator's private key into multiple keyshares, each managed by an independent node operator.
All validator keyshares are stored on-chain in encrypted form using smart contracts. These smart contracts manage the coordination between operators, ensuring that each one knows which keyshare they hold and what actions they need to perform.
A newer feature of SSV is its zero-coordination Distributed Key Generation (DKG) tool. SSV’s DKG allows for the creation and management of private keys where the full validator key is never assembled or stored in a single location and doesn’t require manual synchronization for creation, increasing security and simplifying the process for operators.
The protocol allows for resharing of keyshares, ensuring validator responsibilities continue without interrupting operations, providing flexibility and resilience, particularly as validator sets grow or operators need to be replaced.
For the remainder of this report we will be referring to SSV-DKG rather than key splitting, as that’s the implementation used in Lido’s sDVTm.
The role of SSV nodes in validator operations
Each operator, now in possession of their unique private key share, is responsible for running an SSV node, which includes the specialized SSV client software necessary to participate in the network.
Integration with Ethereum Clients
The SSV node plays a critical role by acting as both the validator client and the coordinator for validator operations. Unlike traditional setups where the validator client is a separate entity, the SSV node integrates these functionalities, establishing connections to both the Execution Layer (EL) and Consensus Layer (CL) clients.
This design allows for seamless integration with various Ethereum client implementations, supporting client diversity.
Validator duties and Consensus mechanism
When validator duties arise—such as attesting to blocks or proposing new ones—each operator uses their key share to generate a partial signature. The network relies on on-chain smart contracts to retrieve operator lists and assignments, and these partial signatures are exchanged over the SSV’s P2P network layer.
The SSV protocol employs a threshold signature scheme (TSS), requiring a minimum number of partial signatures (e.g., 3 out of 5 operators) to reconstruct the complete validator signature necessary for Ethereum's consensus mechanism.
Preventing Double-Signing in SSV
The SSV node software manages consensus among operators regarding the data to be signed, preventing double-signing and ensuring consistent validator performance.
By acting as an intermediary between the EL/CL clients and the validator operations, the SSV node abstracts the complexities of coordination and cryptographic processes. This allows operators to focus on maintaining their infrastructure while the network handles the intricacies of distributed validation.
MEV Management in SSV Network
SSV Network's MEV management is quite complex due to cluster formation based on staker preferences, leading to varied relay support and potentially impacting validator rewards.
To maximize MEV, operators are incentivized to support more relays, increasing overlap and MEV opportunities. Lido SSV also reduces relay compatibility issues by showing MEV compatibility on their web interface, helping stakers form clusters with aligned MEV strategies.
SSV’s reward system for node operators
Another key component of SSV’s design is its economic model, which incentivizes operators to maintain high performance and reliability. Stakers pay operators using SSV’s native token, $SSV or ETH. Each operator sets their own fee, and stakers can choose operators based on reputation, performance, and cost.
This system creates a competitive, market environment where operators are motivated to offer the best possible service to attract stakers.
Additionally, the SSV network operates under a DAO governance model, where $SSV token holders can participate in network-wide decision-making, including implementing upgrades and managing treasury funds.
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What is Lido Obol ?
Obol Network was founded in April 2021 by Collin Myers, former head of global product strategy at ConsenSys.
Obol pioneered and only employs Distributed Key Generation (DKG), and the validator key is generated and immediately split into key shares among operators during a coordinated ceremony.
How Charon facilitates validator coordination
The Charon middleware then becomes central to the validator's operations. Positioned between the validator client (e.g., Prysm, Lighthouse) and the consensus (beacon) node, Charon acts as an intermediary without replacing any existing clients.
This middleware design adheres to Ethereum's principle of composability, allowing seamless integration into various staking architectures without impacting network designs.
Charon's primary role is to facilitate coordination among operators for validator duties such as block proposals and attestations. It aggregates partially signed messages from each operator's validator client and achieves consensus (using TSS) on the data to be authenticated.
Once consensus is reached, Charon broadcasts the aggregated signature to the network via the beacon node. This process ensures that the distributed validator functions cohesively, with each operator contributing to the validator's activities without any single operator having unilateral control.
Flexibility and resilience of Validator setup
By sitting between the validator client and the consensus client, Charon allows validators to be set up with any combination of existing execution, consensus, and validator clients.
This flexibility enhances resiliency against single-client bugs or failures, thereby reducing correlation risk—a significant concern in Ethereum's Proof of Stake consensus, where correlated validator failures can lead to severe penalties.
Imperator plays a crucial role in this effort, as part of the Super Clusters for DVT Staking initiative. By joining this exclusive group of validators, Imperator demonstrates its commitment to top-tier security, performance, and decentralization.
This partnership with Lido Obol not only strengthens the robustness of the network but also showcases Imperator’s proactive approach to driving innovation in Distributed Validator Technology (DVT), ensuring greater resilience and scalability for Ethereum staking operations.
Obol’s Isolated Clusters for enhanced security
Another one of Obol's unique technical features is isolated clusters, minimizing exposure to external gossip networks and enhancing security through private communication channels.
Instead relying on direct TCP connections between operators, Lido Obol enhances both bandwidth efficiency and security by minimizing exposure to public networks. This setup not only shields operators from public internet exposure but also reduces the likelihood of correlated failures across validators.
In terms of MEV, although consensus among operators is required, Obol's coordination mechanisms do facilitate a controlled and predictable MEV environment.
Lido Obol’s Staking Rewards
Obol Network's economic model is designed without introducing a native token or charging direct service fees to node operators. Instead, Obol receives rewards in the form of stETH through a reward distribution mechanism that allocates 1% of the net cluster rewards to node operators via a splitter contract.
Additionally, Obol contributes a portion of its earnings to the Collective’s “1% for Decentralization” retroactive fund (RAF), which redistributes 1% of staking rewards from distributed validators to support ecosystem projects.
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Obol vs SSV: Key differences in Operational Approach
After the Distributed Key Generation (DKG) process, where both Lido SSV and Lido Obol operators hold their individual key shares without any single party controlling the full validator key, their operational approaches diverge significantly.
Different approaches to Distributed Validator Technology (DVT)
The first thing to understand is that SSV and Obol are fundamentally different DVT solutions.
Obol operates as a Distributed Validator (DV) Middleware, which integrates directly into the validator stack between the validator and consensus clients to enable DVT.
In contrast, SSV functions as a DV Operator Network, offering a dedicated validator client with built-in networking and tokenomics to facilitate and incentivize participation.
Streamlined operations vs. Security and decentralization
SSV Network streamlines validator duties through an integrated validator client and automates coordination via on-chain mechanisms and a P2P network, prioritizing ease of use and scalability.
Lido Obol, on the other hand, emphasizes security and decentralization by retaining existing client setups and introducing Charon as middleware to coordinate among operators without relying on on-chain dependencies.
This approach requires more technical expertise and operator involvement, such as modifications from consensus client teams to achieve compatibility and diligent key management given the lack of re-sharing, but aligns more closely with Ethereum's ethos of decentralization and composability.
Economic models and Incentive structures
Tying into this, one of the major differences is in the economic models and incentive structures of Lido SSV vs Lido Obol, in particular how they differ in their use of tokens and mechanisms for compensating node operators.
SSV Network's Token-Based Model
SSV Network introduces a native token, $SSV. Stakers can use $SSV tokens or ETH to compensate node operators for managing validators, with operators setting their own fees, fostering a competitive market for validator services.
Operators are also required to deposit collateral in $SSV tokens, aligning their financial interests with the network's security and performance. The token further enables governance participation, allowing holders to influence protocol upgrades and treasury management.
This model incentivizes operators through direct compensation and provides a mechanism for decentralized decision-making but introduces complexities associated with token management and potential volatility.
Obol Network’s Reward-Sharing Model
Lido Obol does not have a native token and is experimenting with a reward-sharing model using staked Ether (stETH) and other reward mechanisms.
Node operators receive a portion of the staking rewards via a splitter contract, representing a predefined percentage of net Obol cluster rewards. This approach eliminates the need for operators to manage additional tokens or navigate token-based fee structures.
By focusing on direct compensation through staking rewards, Lido Obol simplifies the incentive mechanism and reduces potential risks associated with token volatility. However, the absence of a native token means there is no token-based governance mechanism, and incentives for operators are tied solely to staking performance and rewards.
Lido SSV vs Lido Obol: Performance Analysis
In October 2023, the Lido DAO approved the deployment of the Simple DVT Module, initially capping it at 0.5% of Lido's total staked Ether (stETH) to mitigate risks during the early stages.
This cautious approach allowed the LNOSG to monitor the module's performance closely. The initial phase involved a limited number of clusters with modest validator counts.
Successful performance over three months paved the way for proposals to increase the number of validators per cluster and expand the module's capacity.
Mainnet deployment of Lido SSV and Lido Obol
By April 2024, the Simple DVT Module was ready for mainnet deployment. Obol's Cohort 1 clusters were the first to onboard, following successful testnets that surpassed performance benchmarks.
Performance reports for both networks demonstrated strong results. Obol's Cohort 1 clusters, after increasing validators per cluster from 5 to 40, achieved an average uptime of 99.96%, a block proposal success rate of 86.76%, and an average validator effectiveness of 96.91%, outperforming the overall Ethereum network benchmark of 96.32%.
Similarly, SSV Network's Cohort 1 clusters showed an average uptime of 99.97%, a perfect block proposal success rate of 100%, and an average validator effectiveness of 97.46%, exceeding the network average of 96.71%.
SSV vs Obol : Performance comparison
SSV's higher block proposal success rate suggests more consistent performance in this area, potentially due to its automated and streamlined implementation.
Obol's initial lower block proposal success rates were linked to configuration issues among operators. Once these were addressed, performance improved.
This highlights the importance of operator coordination and proper setup in Obol's implementation. However, validator effectiveness and uptime were comparably high between the two networks.
These positive outcomes led to proposals for increasing the key limits for both networks.
Incentives in Lido’s Economic Model
To incentivize participation and support DVT providers, an economic model was established where an 8% module fee is shared between node operators and DVT providers, and a 2% treasury fee goes to the Lido DAO.
Each participant receives 1% of net cluster rewards, with Obol receiving an additional 1% of net Obol cluster rewards. SSV Network's fees are denominated in its native $SSV token, starting at 0.5% of staking rewards and scheduled to increase over time.
Expansion of DVT Adoption
Decentralized Validator Vault
To further promote DVT adoption and enhance network resilience, initiatives like the Decentralized Validator Vault were introduced.
Developed by the Mellow team, the vault channels new stake into the Simple DVT Module and directs a significant portion of DVT provider incentives to vault users. Both Obol and SSV are participating and offering additional incentives.
SSV and Obol's Successful Integration
Overall, the implementation of SSV Network and Obol Network within Lido's protocol has been successful, with both networks demonstrating strong performance and scalability.
Looking ahead, the module aims to onboard approximately 250 new node operators, including solo stakers, community participants, and professional entities.
sDVTm Transitional Framework
Moreover, the sDVTm is intended to be a transitional framework with a planned phase-out over a three-year period.
This strategy paves the way for more advanced DVT modules that incorporate permissionless onboarding, aligning with Ethereum's core principles of decentralization.
Introducing Community Staking Module (CSM)
A key development on the horizon is the Community Staking Module (CSM), currently in testnet, which is expected to offer a low, capital-efficient bond and minimal operational overhead. The CSM aims to further democratize Ethereum staking by enabling validators to utilize DVT solutions with greater flexibility and reduced barriers to entry.
Lido Obol and Lido SSV: Risks and challenges
Lido SSV Risks
SSV Network’s method involves a host of on-chain dependencies, which, while streamlining and incentivizing staking, could expose operators and stakers to risks associated with smart contract vulnerabilities and blockchain transparency
However, the network does work to mitigate these risks by incorporating measures such as decentralizing infrastructure and TSS that reduce the likelihood of critical failures. The high use of the SSV validator client could also lead to higher slashing penalties given correlation.
Lido Obol Risks
Obol Network requires modifications from consensus client teams to achieve compatibility with its middleware client. This necessity for client-side adjustments may slow down adoption and adds layers of complexity to the validator setup process, potentially deterring less technically adept operators.
Additional complexities, such as the lack of key re-sharing, require greater operator sophistication and diligence.
Lido SSV vs Lido Obol: Closing thoughts
Lido's integration of Distributed Validator Technology (DVT) through partnerships with Lido Obol vs Lido SSV presents two contrasting approaches.
SSV offers a user-friendly staking experience with minimal coordination, facilitating faster scaling but potentially increasing centralization and associated security risks.
In contrast, Obol emphasizes security and decentralization by distributing validator duties across multiple operators, enhancing fault tolerance but requiring greater technical expertise and coordination, which may limit its broader adoption among operators.
Despite these differences, both Obol and SSV have demonstrated high uptime and effective validator performance within Lido's staking protocol. The onboarding of new node operators through these platforms enhances Lido's geographical, infrastructural, and client diversity, strengthening Ethereum's network security.
Lido's integration of both technologies reflects a commitment to leveraging multiple innovative solutions, reducing dependency on a single approach, and fostering competition and innovation within the ecosystem. This strategy aligns with Ethereum's vision of a decentralized network maintained by a diverse set of contributors.
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