Distributed Validator Technology (DVT)'s Role in Enhancing Proof of Stake

Following the successful implementation of the Merge, Ethereum underwent a transition from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus model, significantly reducing its energy consumption. While the Merge has brought about numerous benefits and substantial staking participation, concerns about potential centralization also emerge in parallel, particularly with Lido's control over more than 30% of staked ETH. In response to this particular challenge of the PoS staking mechanism, Distributed Validator Technology (DVT) presents itself as a promising solution.

What is Distributed Validator Technology?

Distributed Validator Technology is the next big thing to make validators more secure by spreading out the duties of managing keys and signing across a cluster of node operators (computers), as opposed to a single machine. This strategy minimizes the risk of single points of failure and enhances the overall resilience of validators (1).

Figure 1. Distributed Validator Technology Diagram
Source: Ethereum.org

Normally, a validator uses two sets of keys: one for participating in consensus (a validator key) and another for accessing funds (a withdrawal key). While the withdrawal key can be safely stored offline, the validator key must be online all the time since it is used to sign on-chain activities like block proposals and attestations. Another aspect of a validator key is that it is needed in its entirety to verify information on the blockchain.

So, three things that need to be taken note of here regarding a validator key:

1. It needs to be online all the time, or else the validator will get slashed (penalties in ETH confiscation) by the network.
2. It must be fully present when signing a message.
3. It should not be easily compromised, since only

In action, here is what DVT employs to address the aforementioned concerns while serving as a reliable protocol for PoS staking:

• Distributed key generation (DKG) generates and distributes online key shares to nodes in a cluster. This way, no single computer has the whole key, making it harder for hackers to take over a computer. Meanwhile, the original complete key is locked away safely offline, and the key parts are used online when needed. (1)
• The threshold signature scheme determines the number of key shares needed for signing duties, e.g. 4 out of 5. This enables specific nodes to be temporarily offline in dire situations such as software bugs, network connection failures, or hardware crashes (2), as a subset of machines within each cluster can perform the necessary signing tasks. (1)
• Individual "key shares" can be combined into a single aggregated key through BLS (Boneh–Lynn–Shacham) keys. In DVT, the validator's private key is created by combining the BLS signatures of all the operators in the cluster. (1)
• Multiparty computation (MPC) secretly generates the full validator key, with each operator only knowing their share. This step not only eliminates the need to rebuild the complete private key on a single device, but also allows the computation to represent the key for message signing. (1)
• The consensus protocol selects a block proposer, who shares the block with other nodes for signature aggregation. Once enough key shares are aggregated and 66% of them approve it, the block is proposed on Ethereum. (1)

The Ethereum blockchain relies on 733,999 validators, as reported by BeaconScan, to verify transactions on the network. Without DVT, each of these validators could potentially be a weak spot in the system. With DVT, the risks of a single point of failure and centralization are minimized, as one private key is distributed among multiple nodes.

In a DVT network, if a validator goes offline, it doesn't face a slashing penalty because there are many other instances where their validator is still working. This approach not only reduces stake concentration by boosting returns for individual and small group stakers, but also strengthens the overall resilience of Ethereum (and any other PoS chains that adopt it in the future). By adopting DVT widely, the network becomes more robust and less susceptible to large-scale slashing events.

Another point is in the absence of DVT, staking providers usually use similar software setups for their validators. If there's a bug in the software, it can affect all their validators because they're all using the same setup. DVT helps solve this problem by spreading risks across different software and hardware setups. This makes the system more resilient because if one setup has a problem, it won't affect all the validators. (1)

DVT Use Cases

Distributed Validator Technology (DVT) has found successful implementation through projects like Obol Network and a41 and here are the primary use cases of DVT:

Squad Staking

Solo stakers often face challenges compared to professional stakers because it's harder and costlier for individuals to set up a strong and reliable staking system compared to well-funded companies.

DVT aims to level the playing field by reducing the difference in earnings between professional validators and solo stakers. For instance, DVT allows a group of friends from different parts of the world, who may not have 32 ETH each, to combine their funds and validate as one strong system with lower slashing risks (3).

Figure 2. Twitter account @sassal0x expresses his opinion towards DVT’s future.
Source: Twitter account @sassal0x

Liquid Staking Integration

Liquid staking protocols (LSP) like Lido are already testing DVT and DVT will be a big part of Lido V2, which will have groups of validators, called modules, that use DVT.

Other staking protocols, like Rocket Pool, can also use DVT. Some people on the rETH issuers governance forum have even suggested that DVT could allow Rocket Pool to support mini-pools with no ETH bonds, instead of the current 8 ETH requirement (but this is just an idea for now).

StakeWise V3 should work really well with DVT. Individual vaults on the platform will be able to easily connect to networks like Obol. Other staking solutions, like Diva, are creating their own DVT solution, which could help them stand out in the competitive liquid staking market (3).

Conclusion

Distributed validator technology is the final key advancement in Ethereum's Merge phase, paving the way for the upcoming "Surge" era. DVT is able to address ETH staking challenges by promoting decentralization while lowering barriers for both retail and institutional validators. With DVT, validators can enhance safety, resilience, and operational diversification.

Reference

1. Ethereum, Distributed validator technology, August 10, 2023
2. Rockship on LinkedIn, Distributed Validator Technology: An Overview of the Next Big Thing, July 4, 2023
3. Ben Giove on Bankless, The Tech Leveling Up Staking, April 27, 2023