Community Staking Module (CSM) was added to the Lido protocol on October 25, 2024, via on-chain vote #180. This was a significant step towards decentralizing the Lido protocol. Since adding the module, more than 180 Node Operators have joined the protocol!
One of the main factors limiting further decentralization of the Lido protocol is the current target share of the CSM. Due to security and safety considerations, the initial target share was set to 1% of the protocol TVL. Today, CSM has already occupied ~0.4% of the protocol TVL, and it keeps growing.
On-chain data about CSM validators’ performance collected by the Rated network looks promising. CSM is still in the Early Adoption phase, which ensures that most Node Operators are independent participants, each running up to 12 validators. The average validator count per Node Operator is slightly below 7.
To ensure further expansion of the Lido protocol decentralization, the module’s target share is proposed to be increased to 2%.
Given the current distribution of the validators between Node Operators in CSM and the acceptable performance of the module in general, it is reasonable to assume that the risks of increasing the module’s target share can be assessed using the existing risk assessment. In this assessment, the main risk factors are:
- Module capture by a single Node Operator;
- Poor performance of the validators in the module;
These factors only partially hold for the current validators in the module due to the observed diversity of the Node Operators and demonstrated performance. Hence, one can assume that the risk of an additional 1% of the target share can be assessed as the initial 1% in the original research, which was made using the assumptions but not the actual data about the performance and validator distribution in the module which was not available by the time the research was made.
Since CSM will still operate in early adoption mode, only new Node Operators can occupy additional module capacity. Once the Early Adoption period is over, an additional risk assessment should be performed to argue about further increasing the target share.