Staking is a core component of the Ethereum ecosystem, which is centered around a Proof-of-Stake (PoS) consensus mechanism, where users can earn rewards by contributing to the security of the network. However, the increasing centralization of power in the hands of a few institutional entities has raised concerns about risks to decentralization and the security of the Ethereum blockchain.
For this reason, incorporating Distributed Validation Technology (DVT) into the staking process provides a more flexible and decentralized alternative, and addresses the shortcomings of traditional centralized staking platforms. Below, we address some frequently asked questions related to Ethereum staking using DVT-based options that allow users to deploy or run validators on the Beacon Chain. These platforms, such as SafeStake, Obol Labs, or SSV Network, make it easier for ordinary users to become ETH investors.
Why is it necessary to convert ETH into tokens or synthetic derivatives, such as sfETH, for storage? Why not participate directly with ETH?
Converting from ETH to sfETH is a common practice on platforms that use derivative tokens to represent staked ETH. Tokens like stETH or rETH are examples of liquid storage tokens used by platforms like Lido and Rocket Pool, designed to provide liquidity while users lock ETH before the Shanghai upgrade.
However, with recent updates to Ethereum, ETH withdrawals are now enabled on the mainnet. This means that users can stake directly with ETH and withdraw their funds whenever they want.
However, depending on the protocol, you may need 32 ETH to directly participate and publish the validator. In cases like SafeStake, it is possible to stake at least 4 ETH to run a type of operator that provides liquidity to create a small pool called “initiators” to help spread the validator on the Beacon Chain.
Note: According to the SafeStake whitepaper, in the second phase, SafeStake will cooperate with LST protocols to run “Pooled Validators”, enabling LST/LRT protocols to deploy validators on the SafeStake platform, enhancing security and improving performance resiliency.
While decentralized, non-custodial options that use DVT (e.g., SafeStake or SSV Network) are available, platforms like Lido Finance and Rocket Pool continue to offer derivative tokens like stETH for additional liquidity and flexibility within the DeFi ecosystem. These tokens allow users to participate in DeFi activities while staking their ETH. However, users should be aware of the associated risks, such as the possibility of unpegging the value between synthetic tokens and ETH.
How can I securely stake ETH directly from a cold wallet?
While keeping private keys offline reduces the risk of hacking, direct storage from a cold wallet may involve signing transactions. To start a validator, for example, you must sign a transaction to send the required funds (32 ETH) from your wallet to a smart contract.
If you lack the 32 ETH required for live storage, protocols like RocketPool allow you to stake rETH on a DEX and sign a transaction to delegate your ETH to the node operator. With SafeStake, you can also run a validator or node trigger directly through the interface with Ledger Live.
Tips for secure cold wallet collection:
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Choose a reliable staking service: Use platforms that implement DVT, such as SafeStake, Obol Labs, or SSV Network, to decentralize auditor responsibilities and reduce single points of failure.
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Contact Staking Services: Platforms like Lido Finance and RocketPool support staking of cold wallets through integration with wallets like Ledger or Trezor.
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Auditor network integration: Protocols with DVT allow users to connect cold wallets to decentralized validator infrastructures, reducing the risk of loss due to validator failure.
Platform Security Protocols: Look for staking platforms that provide protection mechanisms, such as service level agreements (SLAs) and validator monitoring, to prevent inactivity, penalties, or misconduct.
Is there a risk of decoupling between ETH and synthetic tokens?
Using derivative tokens such as stETH or rETH carries a potential risk of depegging, as their value is different from ETH. While these tokens are designed to closely track the value of ETH, market liquidity, demand, and certain events may cause temporary fluctuations in value.
Platforms using stETH often use algorithms to maintain 1:1 parity with ETH. However, users should conduct proper research and stay aware of the risks associated with it. For example, if a small unpeal occurs, buying stETH during the dip and waiting for it to repeal can make gains. Conversely, selling stETH during the demonetization process may result in minor losses.
What are the risks of losing money when signing with DVT Protocols?
Staking with a platform that uses DVT significantly reduces risk compared to traditional staking methods. Key considerations include:
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Distributed Verification Technology (DVT): Platforms like Obol spread verification across multiple operators, reducing the risk of downtime or penalties for misconduct.
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Protocol risks: Although DVT has advantages, no regimen is completely risk-free. Risks such as smart contract errors or management failures are mitigated through audits and community testing.
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Auditor risks: DVT reduces reliance on individual validators, reducing the potential for major failures.
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Platform security measures: DVT-based platforms, such as Safestake or SSV Network, use strong security features, such as locking mechanisms and validator performance monitoring, to protect users’ funds.
How does DVT redefine the relationship between validators and node operators?
Distributed Validation Technology (DVT) offers a more fair, secure and efficient model for collaboration of validator node operators:
- Redistribution of responsibilities: DVT divides auditor responsibilities between multiple operators, reducing individual workloads and enhancing collaboration.
- Enhance security: Verification keys are split between operators, reducing risks from single points of failure.
- Encouraging specialization: Operators can focus on optimizing their nodes, while auditors delegate the technical infrastructure.
- Compatible incentives: Validator profits are distributed proportionately among operators, which incentivizes high performance.
- Increasing inclusion for small operators: DVT allows small operators to participate collectively, promoting decentralization in Ethereum.
What is the impact of DVT on the economic incentives of stakeholders and contract operators?
DVT promotes a balanced incentive structure within the Ethereum ecosystem:
- For stakers: Small-scale stakeholders gain secure access to staking without running full nodes, promoting decentralization and consistent rewards.
- For node operators: Participation in the DVT network ensures shared auditor responsibilities and proportional rewards, which encourages high performance.
- Reducing penalties: By distributing validation tasks, DVT mitigates catastrophic failures, resulting in fewer penalties and improved returns for participants.
How does DVT affect decentralization in Ethereum?
DVT promotes decentralization in Ethereum, which is critical to censorship resistance and network security:
- Reduce node centrality: DVT distributes responsibilities, reducing dependence on senior operators and enhancing diversity.
- Increase community participation: Small communities can create verification groups, which promotes independence and decentralization.
- Enhance attack flexibility: The decentralization of the verifier makes coordinated attacks more difficult.
What challenges does DVT adoption face in the Ethereum ecosystem?
Despite its benefits, adoption of DVT faces several challenges:
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Technical complexity: Implementing a DVT requires advanced technical knowledge, which can be a barrier for non-technical stakeholders. However, more user-friendly solutions are being developed to mitigate this hurdle, such as SafeStake, which is currently in its mainnet phase.
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Infrastructure compatibility: Another big challenge is ensuring compatibility with existing infrastructure. Some staking services and nodes operate within traditional architectures that are not easily compatible with DVT, requiring significant updates to adapt to this technology.
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Awareness and education: Finally, greater awareness and education are needed to drive mass adoption of DVT. Since this technology is relatively new, many participants in the Ethereum ecosystem are not aware of the benefits it offers.
conclusion
The integration of Distributed Validation Technology (DVT) represents a fundamental advance in staking on Ethereum, providing enhanced levels of security, resiliency, and decentralization. By empowering small-scale stakeholders and decentralizing the responsibilities of validation nodes, DVT addresses key concerns regarding centralization and oversight within the network.
As the technology matures, we are likely to see increasing adoption within the ecosystem, driven by innovations that simplify its use and reduce upfront costs. For stakeholders looking to participate securely and efficiently in the Ethereum ecosystem, DVT is the solution