GM! We support the proposal to increase the Community Staking Module (CSM) share from 1% to 2% of the protocol’s total value locked (TVL) and transition the module to a fully permissionless phase. This proposal aligns with the long-term goals of decentralization, inclusivity, and resilience for the Lido protocol and Ethereum’s staking ecosystem. Below are the key reasons for our support:
1. Advancing Decentralization
- Progress in Diversification: The CSM has onboarded over 225 independent Node Operators (NOs), indicating effectiveness in diversifying the validator set and reducing central points of failure.
- Permissionless Access: Transitioning to a fully permissionless model removes entry barriers, enabling more validators to participate without requiring approval, thereby enhancing network decentralization. However, without appropriate safeguards, there’s a risk that a single operator could control multiple NOs, leading to centralization.
- Sybil Resistance Mechanisms: The bond requirement and oversight by the CSM Committee and LNOSG help to mitigate such centralization risks by making it economically and procedurally challenging to monopolize validator slots.
- Removal of Validator Limits: Lifting the 12-validator cap per NO allows capable solo stakers to meaningfully increase their rewards from solo staking and incentivise new solo stakers to pick up this skillset.
2. Data-Driven Confidence
- Strong Performance Metrics: On-chain data from the Rated Network shows that CSM validators exhibit solid performance. The average validator count per Node Operator (NO) is slightly below 7, suggesting a balanced distribution under the Early Adoption phase.
- Addressing Validator Skewness: The previous skewness observed in the Testnet—where three operators managed a disproportionate number of validators—was mitigated by limiting NOs to 12 validators during Early Adoption.
3. Balanced Risk Mitigation
- Financial Commitment via Bonds: The proposed permissionless phase includes a 2.4 ETH bond requirement for new operators, higher than the 1.5 ETH for Early Adoption participants. This bond acts as a Sybil resistance mechanism and a financial deterrent against malicious activities like MEV stealing or validator slashing.
- Governance and Oversight Structures:
- CSM Committee: Responsible for overseeing CSM operations and governance, the committee manages permissions, addresses emergencies, and enforces penalties. Comprising six members with a 4/6 multisig threshold, it aims to ensure decisions are executed securely and efficiently.
- Lido Node Operator Sub-governance Group (LNOSG): Plays a critical role in evaluating and onboarding new operators, ensuring they align with Lido’s standards and contribute to decentralization. LNOSG’s oversight adds an additional layer of scrutiny.
- Risk Assessment Alignment: The observed performance and diversity of current validators suggest that increasing the CSM share from 1% to 2% poses manageable incremental risks, and we agree this should be assessed with the original risk assessment that accounted for potential centralization and performance issues.
Conclusion
Transitioning the CSM to a fully permissionless phase and increasing its share to 2% of the protocol’s TVL is expected to promote decentralization and scalability while maintaining security through financial and governance safeguards. The involvement of the CSM Committee and LNOSG provides oversight to help manage risks associated with permissionless participation. We encourage the community to support this proposal, recognizing its potential to enhance the resilience and inclusivity of the Lido protocol and contribute positively to the Ethereum staking ecosystem. Additionally, we advocate for continued discussions on implementing further safeguards to ensure that decentralization and security remain priorities as the protocol evolves.