DVT & Long-Term Ethereum Decentralization
As Ethereum works towards achieving decentralization through scalability, it’s becoming increasingly clear that a specialized modular blockchain approach, rather than a monolithic one, is gaining momentum. In this modular blockchain model, a layer one can be divided into three layers: the execution layer, the data layer, and the consensus layer. The execution layer has seen the development of optimistic and ZK roll-ups such as Optimism, Arbitrum, and Starkware after several iterations. These advancements have made the execution layer more mature and sophisticated. As a result, research has shifted focus to the next layer, the data layer. One important aspect driving innovation in the data layer is the use of data availability sampling methods, which randomly sample the data to ensure the validity of transaction data.
Another crucial element for a blockchain’s existence is the consensus layer, which includes the consensus mechanism and its scalability. Ethereum has transitioned from a proof-of-work to a proof-of-stake network with the launch of the Beacon Chain on September 15, 2022. Over the past eight months, the number of validators has increased from 400,000 to 598,000 at the time of writing. The spotlight is now on making Ethereum staking more decentralized, scalable, simpler, secure, solo-staker friendly, and less prone to slashing penalties. One promising technology in this regard is distributed validator technology (DVT). In this article, we will analyze DVT and explore how it contributes to Ethereum’s roadmap towards decentralization.
The ETH Staking Ecosystem
Distributed Validator Technology (DVT) simplifies the process of running an Ethereum validator across multiple machines. Before we explore the significance of this technology in decentralizing Ethereum validators, it’s important to understand the current architecture of ETH staking.
The diagram above depicts the key stakeholders involved in ETH 2.0 staking and their connections. At the center of the graph, we have the Beacon Chain represented by a cylinder. The Beacon Chain coordinates the validation process and generates new blocks containing accepted transactions.
In the center, we have two types of software commonly referred to as ETH2 clients. Consensus clients and execution clients have distinct roles in adding new blocks. Consensus clients validate and process transactions on the Ethereum network, ensuring consensus among all participating nodes. On the other hand, execution clients execute smart contracts and handle complex operations. While they collaborate with consensus clients for transaction validation and execution, their primary focus is implementing the Ethereum Virtual Machine (EVM), which executes smart contract code. Both client types are vital for maintaining the network.
The immediate circle surrounding the cylinder represents node operators, who bear the responsibility of running the infrastructure required for network participation. This includes hardware, software, and network connectivity. Node operators run an ETH2 client, maintain the necessary hardware and software, and monitor node performance to ensure proper functioning.
The outer belt next to the node operators consists of validators or validator-as-a-service providers. As Ethereum holders, we often interact with these service providers. They come in various forms, such as centralized exchanges or staking pools, offering different product designs and capital requirements. The primary value proposition of these validator service providers is convenience. They handle the complexities of staking, including private key management, node operator coordination, and even provide a liquid version of the staked asset for use in decentralized finance (DeFi). They serve as asset managers in the realm of ETH staking, bringing in capital and signing transactions when necessary.
Alternatively, an individual can choose to directly connect to both execution clients and consensus clients, run the required software and hardware, and become a solo staker — the most independent presence in ETH staking.
It’s worth noting that the current architecture has multiple links vulnerable to single points of failure and lacks sufficient decentralization. Issues such as a lack of client diversity, careless private key storage, or node operator failures can result in the loss of user funds. This is where Distributed Validator Technology (DVT) can add significant value. Let’s delve into the details.
How Does DVT Work?
Distributed Validator Technology (DVT) allows validators to operate on multiple machines, which is made possible through the adoption of various technologies. One key enabler is Distributed Key Generation (DKG), a cryptographic process that enables participants to collaboratively generate a private key without any individual member having access to the complete key. In DKG, each participant generates a partial shard of the private key, and these shards are combined to derive the full private key. This approach ensures that validators don’t need to store the entire private key in one node but can distribute key shards across multiple nodes. Even if a shard or a subset of the key is offline and unable to sign transactions, the remaining key shards still maintain integrity and can be used for signing. Publicly verifiable secret sharing (PVSS) and verifiable secret sharing (VSS) are commonly used techniques to ensure the correctness of key generation, with PVSS incorporating zero-knowledge proofs for public verification.
Once the keys are shared and stored on multiple nodes, a coordination mechanism is needed for secure validation and communication among the nodes to ensure complete signature generation. This coordination, which forms the essence of DVT, can be achieved through various mechanisms, with a common approach being a threshold signature scheme. In this scheme, a specified number of validators must cooperate to sign a transaction, preventing any single validator from signing alone and enhancing the security of the validation process. As for consensus, the SSV network, a DVT product, utilizes the Byzantine Fault Tolerance (BFT) protocol to reach signing consensus among nodes.
Additionally, DVT must address the issue of shared infrastructure among nodes responsible for storing key shards. Shared infrastructure can lead to correlated node failures, undermining the goal of decentralization. In the SSV network, users have the flexibility to distribute key shards among different node operators based on factors such as geolocation, different data centers, data center brands, and different client implementations. This emphasizes the importance of multi-client implementation as a crucial component of DVT. Having client diversity is essential for the long-term viability of the Ethereum network, as it reduces the risk of a single client with a majority market share causing forks or other disruptions that could result in penalties for validators.
Obol network is a company actively developing DVT and aims to serve as the infrastructure coordination layer for staking. Their non-custodial middleware called Charon ensures that the protocol itself does not have custody of the keys. Instead, only the validator clients hold and manage the private keys for signing transactions. Charon acts as an intermediary between the beacon client and validator client, intercepting the communication and aggregating the signatures before relaying them back to the beacon client. This design approach removes the ability for the protocol to sign arbitrary data, placing Obol network in a less controlling role and ensuring greater security. By incorporating these technologies and methodologies, DVT enhances the security, decentralization, and efficiency of Ethereum’s validator ecosystem.
Who Benefits from DVT?
DVT brings benefits to almost every stakeholder in the staking ecosystem, making it a compelling technology. Liquid staking pools, with their growing assets under management (AUM), prefer to divide their stake among multiple operators rather than relying on a single validator. DVT allows them to share one validator among multiple operators, reducing the vulnerability of staked assets to the failure of a single operator.
For solo stakers, DVT provides peace of mind by mitigating the impact of internet or power outages. They can continue validating transactions even during intermittent connectivity or power disruptions. Institutional staking products, such as Coinbase staking or Blockdaemon, can benefit from DVT by reducing their operational and hardware costs. By implementing fault-tolerant solutions like DVT, validators can safely increase the number of keys per node, resulting in decreased hardware expenses. Additionally, lower risk factors associated with DVT may lead to reduced insurance premiums for staking service providers. Overall, the widespread advantages of DVT make it an appealing technology for various stakeholders within the staking ecosystem.
One piece of the puzzle
To summarize DVT’s value proposition, see graph below:
DVT brings tremendous value in ETH staking. Its technology decreases the chance for node failure, increases the key security by distributing it to multiple node operators, and increases client diversity by product design. This leads to derisking slashing, decreasing inactivity penalty and in turn lift staker confidence. However, it is just one piece of the puzzle. Only by working together with other stakeholders in Graph 1 does it truly realize the vision of ETH decentralization, scalability, and security.
Combined with liquid staking pools, the users are not subjected to 32 ETH requirement thus lowering the entry barrier for more people participating in ETH staking.
If the staking pool also requires the node operators to put in collateral, it reduces the risk of node collusion as the collusion will result in their own stake being slashed.
If we add secure key storage using cold storage, multi-sig, or other methods, along with node operators backing redundant nodes up in case of failure, it will further derisk staking and boost validator confidence. For example, Puffer is a liquidity staking pool based on a technology called Secure-Signers. The core idea is to hold the private key inside a TEE and only sign blocks after checking it won’t trigger slashing so operators can reassure stakers of security. This is an improvement on the node operation side and can be integrated as part of DVT. This Secure-Signer enables permissionless participation via remote attestation, meaning that unlike Lido, node operator onboarding does not require DAO voting and other governance mechanisms. It also claims to lower the staking capital requirements to 1 ETH. It also creates a “smoothing factor” that can be used to evenly distribute MEV rewards to each of the pool participants. Not a lot of research is available on Puffer at the moment. Whether it can realize what it claims is subject to further investigation. I also look forward to future technologies making ETH staking safer, more reliable, and one day nothing will keep the validators awake at night.
Future challenges
I also want to discuss the challenges introduced by the adoption of DVT. First and foremost, DVT involves the coordination of multiple nodes, which can increase the complexity of the system. As discussed earlier, SSV network uses the BFT consensus mechanism among the nodes. However, the scaling limitation of BFTprotocol is that it is designed to handle a limited number of nodes, typically up to a few hundred. Beyond that number, the communication and consensus overhead become prohibitively expensive, resulting in degraded performance and reduced security. This makes it challenging to apply BFT consensus to large-scale networks if you decide to shard the keys to 100 pieces. Currently the limit on key shards are 13 on SSV network and 10 on Obol network. Although this limitation does not impose immediate risk to DVT, further improvement can be made.
Similar to the tradeoff between decentralization and efficiency, DVT can increase the latency of the system, as transactions must be signed by multiple nodes before they can be processed. Because the keys are sharded to many pieces, as a whole, DVT requires more nodes to be involved in the staking process, which can increase the requirements for node redundancy. This can be solved by more investment by the node operators. But it also means it can be cost prohibitive for the node operators to adopt DVT.
Conclusion
In conclusion, the arrival of DVT represents a major step forward in the staking ecosystem. It offers secure, flexible, and decentralized infrastructure for staking, making it appealing to individual stakers, operators, and staking pools. DVT has the potential to transform the staking landscape and become a key player in the future of Ethereum staking. As the ecosystem evolves, DVT is well-positioned to meet the changing needs of stakeholders and drive the growth of blockchain technology. I’m excited to see the progress of this promising technology and the exciting opportunities it will create for the broader blockchain community.
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