Defending Ethereum’s Decentralization: DVT-Powered Staking
As centralization in Ethereum increases, so has interest in decentralized Distributed Validator Technology (DVT) protocols to help counterbalance prominent centralized staking providers that control large amounts of staked ETH.
In fact, centralization is one of the major concerns the Ethereum community has been voicing since ‘The Merge’ update that changed how the blockchain validates transactions from Proof-of-Work (PoW/mining) to Proof-of-Stake (PoS/consensus).
However, for PoS to work properly, responsible validators are needed to confirm transactions executed on the blockchain by attesting to and proposing new blocks. In the case of Ethereum, running a validator requires a deposit of 32 ETH to participate, which is a significant barrier to entry for users wishing to participate and earn staking rewards.
In addition to the high cost, security threats, lack of knowledge, and inadequate technical ability are enough to dissuade many users from running independent, decentralized solo staking nodes.
As a result, many staking services have cropped-up, offering users the ability to earn staking rewards by depositing less than 32 ETH, with no technical ability required. However, these staking services are all rather centralized when it comes to node operations and validators.
Consequently, ETH staking has become more centralized than decentralized, with four (4) major entities controlling almost 50% of the total amount of ETH staked in the Beacon Chain contract. Since this staked ETH powers validators that secure the Ethereum blockchain, single points of failure exist that could compromise the integrity of the entire network.
Here are the risks that concentrating staking power in the hands of only a few entities presents:
- Blockchain finality and security: When any single entity controls 33% or more of the total amount of staked ETH, that entity could prevent the blockchain from finalizing. Additionally, when any single entity controls 51% or more of the total amount of staked ETH, that entity could rewrite the history of the blockchain in what is known as a ‘51% attack.’
- Key theft and loss: If a centralized entity is hacked or compromised, bad actors can steal private keys or act maliciously, which can lead to the unrecoverable loss of funds deposited in validators. Additionally, many services require their operators to handle all parts of private key security, subjecting keys to potential loss.
- Widespread node failure and slashing: Security and online availability are two very important parts of running a node. An attack on a centralized staking provider could cause all of the validators running on that service to stop responding at the same time or act in a way that results in them all being slashed. The Beacon Chain uses threat level to determine slashing penalties,and since it would likely interpret this behavior as an attack and a significant threat, all validators running on the staking service could be slashed and lose some or all of their funds.
- Regulation: The U.S. government’s suspension of Kraken’s popular ETH staking service in Q1 2023 is an example of the potential risks of having ETH staked in a centralized protocol.
DVT solutions, like SafeStake and others, offer a comprehensive solution to help mitigate centralization issues.
What is Distributed Validator Technology (DVT)?
DVT is a novel approach to strengthening the security, resilience, and decentralization of blockchain validators by splitting the validator private key into multiple shares and distributing them across a cluster of computers or nodes.
An easy way to think about DVT is as a multisig wallet that runs a validator, helping to strengthen the resiliency and decentralize Ethereum by allowing a validator to run on multiple nodes instead of a single node.
With DVT, Ethereum can achieve a new level of fault tolerance, security, and decentralization, while minimizing single points of failure and centralization issues.
By allowing entities and individuals to run Ethereum validators on more than one node or machine, DVT also offers validator resiliency and ensures continued performance, even if one of the managing nodes is offline or compromised.
Additionally, DVT makes it much harder for potential attackers to succeed, as they would need to compromise three out of four nodes in the same committee to take control of a validator.
Countering centralization with DVT
In light of the increasing concerns over centralization, some staking providers are reevaluating their current approach and considering adding DVT with a permissionless network of operators.
DVT-based solutions, like SafeStake and the others outlined below, aim to guarantee security, resiliency, and decentralization by ensuring that validators reach consensus without undermining the basic principles of Ethereum’s underlying technology.
SafeStake
SafeStake has emerged as a unique DVT solution, being the first DVT infrastructure written in Rust for increased performance and security for the smart contracts that power it. SafeStake utilizes HotStuff for operator committee consensus, as opposed to iBFT/qBFT, offering higher validator effectiveness when one node in a committee is offline and superior slashing protection in the event a node becomes compromised. It also features a built-in, automated Distributed Key Generation (DKG) protocol to handle private key generation for multiple depositors and pooled validators.
The DVT functionality in SafeStake is powered by three key components: Shamir Secret Sharing for BLS Signatures, Multi-Party Computation (MPC), and the BFT (Byzantine Fault Tolerance) consensus layer (HotStuff). The result is a validator that uses a ‘3 out of 4’ threshold signature scheme, where only three out of four operators are needed to attest on a validator’s behalf, and where no single entity can ever gain control or recreate the private key.
SafeStake does this by dividing a validator private key into four (4) shares and distributing one share to each node in the committee that will manage and attest for the validator. Nodes are managed by independent, decentralized operators on a permissionless network, creating a highly decentralized, ultra-secure, fault-tolerant environment.
The SafeStake protocol aims to provide a non-custodial staking solution that is easily accessible to average users and home stakers, with several advantages over traditional single-node staking solutions:
- High Availability — Maximizes staking rewards by keeping validators online and available to perform duties for the Beacon Chain.
- Strong Key Security — By using multiple key shares to do the work instead of the private key itself, the key can be stored safely offline while the SafeStake tech stack ensures no single operator or bad actor can ever recreate it. DKG is Stage 2 ensures multiple parties can securely generate a private key and split it into shares without any of the parties ever having knowledge of the key or the secret used to share it.
- Decentralization — SafeStake runs on a permissionless network of independent, decentralized operators with varying geolocations and hardware/software configurations for the ultimate resiliency.
- Low Staking Threshold — In SafeStake Stage 2, users can deposit less than 32 ETH and earn staking rewards by participating in running pooled validators. Additionally, liquid staking will be introduced, along with the “initiator” operator role, allowing for 4 ETH deposits to create mini-pools for new validators. Non-operators can deposit as little as 0.1 ETH to earn staking rewards by funding part of the remaining 28 ETH needed.
- Increased Capital Efficiency — Solo and home stakers that have equipment with the ability to support 15–20 validators can upgrade their machine with the ‘DV staker’ package to participate in the SafeStake network as a plug-n-play operator. The same hardware can now support up to 200 Ethereum validators with no drop in performance.
SafeStake is currently wrapping-up testing on Stage 1 that allows users to import validator keystore files and choose four (4) operators to manage the validartor via a simple drag-and-drop web interface. SafeStake’s mainnet launch is scheduled to happen by the end of 2023, with Stage 2 rolling-out on the new Holesky testnet shortly after.
Benefits of DVT for stakers
Distributed Validator Technology offers increased slashing protection for honest validators, regardless of their size. Additionally, a diverse set of nodes offers redundancy, avoiding disruptions and single points of failure during attestations and block proposals.
As Vitalik Buterin points out in the Reddit thread below, key security, slashing protection, and fault tolerance are critical areas where the current staking ecosystem needs improvement, and DVT can be one of the solutions to make it happen.
One of the major advantages of implementing DVT solutions to achieve these goals is that they do not introduce any additional complexity into the Ethereum core protocol. For example, SafeStake operates as a completely independent trust-minimized middle layer that runs on top of the Lighthouse consensus client.
Why DVT is important for Ethereum’s future
Currently, there are roughly 28 million ETH in the Beacon Chain staking contract, equating to a little over 23% of the total ETH supply. However, as we and others have pointed out, much of this ETH is staked with a handful of large, centralized staking services, with Lido currently leading the pack and controlling around 33% of the total ETH staked.
Now, it is becoming more important than ever before to explore ways we can mitigate the risks that these centralized staking entities pose to the blockchain.
Due to Ethereum’s relevance in the decentralized finance (DeFi) market, centralization is a latent risk that can undermine both the principles that built the blockchain and the billions of dollars in staked ETH securing it.
Ethereum simply cannot afford to tolerate risks, like unwanted chain forks driven by malicious validators or the inability of the blockchain to finalize.
The total amount of staked ETH has grown significantly over the past year. After the unprecedented events that happened with major crypto players, like FTX, Terra, BlockFi, and others, there is increased interest in developing projects that offer a more decentralized non-custodial approach to ETH staking.
About SafeStake
SafeStake is a pioneering technology company focused on revolutionizing Ethereum staking. With its cutting-edge, decentralized Distributed Validator Technology (DVT), SafeStake provides an ultra-secure, fault-tolerant environment for Ethereum validators, maximizing staking rewards and minimizing penalties. SafeStake is committed to driving the growth, innovation, and decentralization of the Ethereum network while ensuring the security and prosperity of its participants.
