Vitalik mentions distributed verification technology again, Lido deserves renewed attention?

Original author: Deep Tide TechFlow

As the narrative rotates, the market’s focus gradually shifts back to Ethereum.

And Vitalik’s various research on Ethereum often contains the possibility of leading new hot spots. On December 28, Vitalik published a research blog post exploring how to handle the huge number of signature loads on the Ethereum network without sacrificing decentralization.

(Related Reading: Sticking to 8192 signatures per slot post-SSF: how and why)

At the same time, Vitalik also proposed a solution in its research: using DVT (distributed validator technology) to build a decentralization staking pool.

As we all know, Ethereum’s Consensus Mechanism transformed into a POS with a staking mechanism after the completion of the Merge. At present, several large pledge service providers have monopolized a large market share, which has also raised concerns about the pledge service center.

High performance load, staking centralization, Vitalik wants to solve the problem… It’s all back to the old narrative of “optimizing Ethereum”.

(For viewers who are not familiar with DVT, you can check out this: After the Ethereum Merge, DVT distributed verification technology is crucial)

As for DVT, the first project that comes to mind in the market is the only project that uses distributed verification technology in SSV — current Liquidity staking field, with a Market Cap of only about $200 million.

However, due to the relatively mature ecology on Ethereum, after a technical narrative is rekindled, it is actually a good choice to avoid the investment direction of the pile and chase relatively stable beta returns.

Therefore, in addition to the straightforward logical project of SSV, Lido itself is also worth paying attention to.

Break the stereotype of LDO centralized staking

A classic logical fallacy: whoever has a high market share in the liquidity staking track is centralized.

Judging from the data, Lido occupies 3% of the market share, which is indeed a dominant position. However, the monopoly of market share and whether the pledge method is centralized are actually two different things.

A high market share can only mean that you are the boss and may be the only one, but the boss himself uses what technical methods to pledge, in fact, still need to be carefully examined.

Last November, Lido was actually already using the DVT scheme highlighted by Vitalik to implement so-called distributed validators. Lido calls this solution a “simple DVT module” and is supported by ObolNetwork and ssv_network.

Stripped of the technical details of the solution, in layman’s terms, Lido now allows multiple Node Operators to manage different Nodes and reach a Consensus to fulfill the responsibilities of the Validator. At the same time, it also provides a wider range of Node Operator participation opportunities, improving the Decentralization, Distribution, and Resiliency of the network.

The Simple DVT module now allows individual stakers, community stakers, existing node operators, and other staking organizations to participate in Lido’s testnet, which will be updated on Mainnet with a richer variety of validators.

From the testnet data, more than 300 participants and more than 175 individual and community stakers participated in the testnet globally, and its node distribution is increasingly decentralized.

As a result, Lido’s technical changes actually reveal a layer of information: the project is already compatible with Vitalik’s recently revived DVT.

Whether market funds will take the opportunity to speculate also needs to analyze Lido’s other fundamental data.

Gain insight into your data and seek beta gains

What about Lido’s other fundamentals outside of technology?

We all know that Lido is the leader of liquidity staking, accounting for nearly 30% of the staking share. But with such absolute data, there is no way to see its potential or room for capital speculation.

But if you make a set of comparisons, it’s easy to see the opportunities:

• The ETH staked in Lido accounts for about 8% of the total ETH in the current market, in contrast, the Market Cap of LDO Token is less than 1% of the total Market Cap ETH Token— Market Cap which may be underestimated relative to the contribution of Liquidity staking;

A more intuitive comparison is that with the Ethereum Merge upgrade allowing users to withdraw the ETH they have staked, theoretically the ETH in each liquidity staking pool will be reduced;

However, data from DefiLlama shows that Lido’s TVL will rise instead of falling in 2023, which means that the amount of ETH staked by users through Lido has increased.

At the same time, Technical analysis from extranet analysts and KOLs shows that LDOs are breaking through the resistance level of the last 1 and a half years, while also breaking through the downward trend of nearly 20 months.

Although pure technical analysis does not guide investment research, good fundamentals (back to the DVT narrative) coupled with changes in technical patterns actually give market funds a certain reason and space to operate.

Admittedly, betting on projects with smaller Market Caps such as SSV and ObolNetwork may yield higher yields, but it also means drastic changes in Token prices.

The revival of DVT technology, the market’s focus on Ethereum’s optimization narrative (such as parallel EVM), and the upcoming Cancun upgrade in the first quarter of this year have actually provided a visible outlet and window of opportunity for funds to return to the Ethereum ecosystem;

While focusing on low-Market Cap projects, choosing a leader closely related to ETH-related tracks may also be a relatively safe and secure choice to win beta returns.

After all, in the crypto market, old projects often recover quickly when no one is paying attention, and then they will see countless justifications for this recovery in the information overload.

Making relatively safe decisions before recovery is far better than eating fishtails after a lot of buzz.