[Hasu's GOOSE-2 Submission] A Product Line Approach to Grow Lido’s Staking Ecosystem

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Can I ask how long it’s going to take for us to begin to push this forward (regardless of what the goals end up being?)

I’m personally for scaling vertically because I think Lido has much better advantages than more centralized staking providers given TradFi typically needs centralization in their stack for regulation purposes.

That being said, TIME IS OF THE ESSENCE!

Whatever we decided, we need to move quick, the window of opportunity is closing IMO and if we want to scale horizontally, let’s get that ball rolling asap.

Every single LST/Staking provider is probably looking at ETH ETF and salivating (see Alluvial just raised another $4m this week: Alluvial Raises Total Funding to $22.5M to Meet Institutional Demand and Expand Support For Liquid Collective · Alluvial)

I think we should figure out if we want to scale products horizontally vs. vertically as a separate issue from the fee switch and other things just to be able to move fast and get quorum.

Let’s not sit here for a month and debate which way to expand and tangle that up with things like the fee switch and the open market for validators. While other teams are out there talking to the Blackrocks and Fidelity’s of the world. If we want to horizontally scale, we should be having those conversations yesterday, let’s not waste time.

We all agree that we want to expand the product line, let’s figure out what makes the most sense from a resource and practicality POV and get after it.

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Gregory of the Lido Audits Committee here. Thank you for this submission; it looks like a great starting point for a discussion. I am also happy to see a real conversation happening here; it’s refreshing. I have a couple of concerns/questions, though.

  1. The key goal for the previous GOOSE/reGOOSE cycle was a laser focus on security and decentralization. One can argue that Lido did a great job on the decentralization path, but I don’t see how, in general, the security part can be dropped for the upcoming new cycle. Or do we consider it something that no longer requires a special mention?
  2. The tokenomics part isn’t coming out of the blue – it’s been talked about since the very start of Lido. However, any proposals regarding revenue sharing and other mechanisms of LDO value accrual were consistently ignored, rejected, or deprioritized by the DAO speakers (which can be seen on this forum over the last few years). What is the reasoning behind resurfacing this topic now, especially given that the proposed dual governance would help protect the DAO from the governance capture and thus chip another bit of LDO voting value?
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Thank you for your thoughtful proposal, @Hasu. I agree with many of your points, but I’d like to address one of the market opportunities identified for Lido:

  • Leverage-seekers: Those seeking the lowest-cost leverage while minimizing liquidation risk.

This market segment raises concerns, as pursuing it would effectively require Lido protocol (or a component thereof) to function as a lending protocol. Here are my key reservations:

  1. Limited stETH borrowing demand: While Lido could build a protocol that allows users to obtain stETH-denominated overcollateralized loans (minting stETH) against on-chain collateral—similar to proprietary stablecoins like Aave’s GHO and Curve’s crvUSD—, historical market data suggests limited demand. Lending markets consistently show that users primarily borrow stablecoins against volatile collateral (e.g., ETH/stETH). For context, Aave v3 on Ethereum currently shows 1.05M wstETH supplied as collateral with only 22.3K wstETH borrowed at a borrowing rate of [rebasing rate + 0.09%]. While some opportunities exist for leveraging staking or restaking yields, these appear to be temporary market inefficiencies rather than sustainable use cases to build a lending protocol around.

  2. Unclear competitive advantage for stETH-backed loans: Lending markets have significantly evolved over the last couple of years and there have been areas of significant product innovation, such as liquidation algorithms (see, e.g., Fluid’s more efficient slot-based vs traditional position-level liquidation or auction-based mechanisms vs fixed liquidation bonuses). Competition in the space is fierce and based on price (borrowing rates), capital efficiency (risk parameters / LTV) and, perhaps, perceived security. Potentially, there might be situations where, due to more direct access to the withdrawal queue, Lido might be able to prioritize collateral liquidations over other withdrawal requests and thus be more competitive on the liquidations front; for me, that is, however, unclear and yet to be seen.

  3. Direct competition with lending markets could harm (w)stETH’s utility: As your proposal notes, direct competition with centralized exchanges’ staking products already impacts Lido/stETH integration into their platforms, particularly for margin collateral use. stETH’s utility stems from its network effects, which depend on integration with and support from key industry players—especially lending protocols like Aave, Maker/Sky, Morpho, and Fluid. For example, I believe Aave’s recent Lido market to be widely considered a success and mutually beneficial to both protocols. Entering the lending market space would position Lido DAO as a direct competitor to essentially all of these lending platforms. This could jeopardize these crucial partnerships and hamper future collaboration opportunities.

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I think these are all good points.

UniswapDAO has not activated a fee switch, and we should deeply understand why that is happening. Some other DAOs are doing it, which we should explore as well. Overall, a possibility study should be done on Lido’s specific circumstances.

From a strategic perspective, we must understand that the DAO’s treasury belongs to token holders. One of Lido’s core values is automation, as we seek to replace discretion with algorithms at every possible point. Now, one could ask, “What would very intelligent and long-term-oriented token holders want the DAO to do with the treasury?” and then automate that through an algorithm. That would be the Lido way.

Most importantly, we have been growing the pie before dividing it, and we should continue following this logic. It’s common sense for a young protocol in a market with much room still to grow. In other times, buybacks can be entertained when (1) the treasury grows too large and (2) LDO trades extremely cheaply in the market. In that condition, the necessary internal rate of return on reinvestment would have to be extremely high and, hence, hard to reach.

For me, aligning with token holders doesn’t mean stopping investing in growth or starting making bad capital allocation decisions from the treasury, such as diverting money from promising new product lines. It’s more about starting an exploration that could end with something like the intelligent algorithm I described, which could strike a good middle ground between maximizing good capital allocation and maximizing token holder rights.

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I’m a big believer in governance minimized, algorithmic and automated dispersion. I think it’s the future for DAOs. A type of gauge. Thumbs up in general.

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Hey everyone!

Great to see this thoughtful proposal, the active discussion, and all the great questions. Since there hasn’t been any pushback on the forum, the DAO Operations Workstream plans to proceed with a Snapshot vote this Thursday, November 21st, at 4 PM UTC.

To give you a full view of what’s on the table, I’ve connected the three-year goals with the proposed focus areas and initiatives. Here’s a detailed breakdown:

Goal #1: Lido Has Effective and Decentralized Governance

2025 Main Focus: Strengthen LDO’s Role in Governance

  • Objective: Explore the possibilities to tie LDO tokens to protocol revenue to attract committed, long-term holders and strengthen governance alignment.

Other Key Initiatives

  • Implement Dual Governance
  • Simplify Governance Participation: facilitate LDO delegation, encourage broader participation.
  • Enhance overall operational security and transparency

Goal #2: Lido Attracts the Best Validator Set in the Market

2025 Main Focus: Establish an Open Market for Validators

  • Objective: Create a validator marketplace with flexible fee structures, reflecting each validator’s risk profile and contribution to decentralization.

Other Key Initiatives

  • Continued contributing to decentralization, expanding CSM and DVT, while staying flexible to adjust budgets if the issuance is cut
  • Deploy programmatically initiated exits

Goal #3: stETH Is the Most Used Token in the Ethereum Ecosystem

2025 Main Focus: Expand stETH’s Ecosystem with a Diverse Product Line

  • Objective: Transition from a single-product focus to a suite of staking products, targeting underserved segments:
    • Institutional Stakers: Provide tailored solutions for specific technical, legal, and compliance requirements.
    • Restakers: Offer opportunities for higher risk/reward profiles through restaking and farming.
    • Leverage Seekers: Deliver affordable leverage with minimized liquidation risks.

Other Key Initiatives

  • Maximize Network Effect and Liquidity of stETH: Enhance stETH’s utility and accessibility across the Ethereum ecosystem.
  • Keep Focusing on the Institutional Market

Let me know if you have anything missed or unclear! I hope that will be useful.

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Introduction

Our goal is to objectively inquire about the potential positive and negative impacts of GOOSE 2 on Lido.

Key Takeaways:

  • Adding a beachhead for Custody Providers to minimize liability for institutional holders
  • Removing “Aligning risk/reward between more and less risky modules” from the GOOSE 2 proposal because it limits ingenuity by enforcing the “how” of building the validator marketplace.
  • Including a source in the GOOSE 2 proposal to find the three-year goals of Lido from ReGOOSE.

[TOC]

Extending The Discussion Period

In part due to GOOSE being a requirement for EGGS and the current spend expiring at the end of the year, we alter our stance to move forward with the proposal at the assigned interval.

Considering Hasu’s recent mention in the Goose Guidelines Topic, we still believe that this proposal should explicitly state where to find Lido’s three-year goals (Source).

Previous Successes Of GOOSE

We’d like to congratulate the team on significant successes including enhanced decentralized governance with increased LDO delegation and participation, an expanded validator set from 37 to over 400 node operators—including many solo stakers—and stETH becoming the ecosystem’s most used token, advancing toward top staking collateral status, all achieved without any security incidents.

What Do The Target Beachheads Want?

Per Hasu’s observations vanilla stETH underserves customers such as HNWIs, ETF/ETP providers, and neo banks. Additionally, stETH should continue to expand its offering towards restaking and lending services. We are in line with the horizontal expansion of Lido to capture institutional holders, restaking services, and lending markets through a diverse and synergistic staking product suite.

Not only is Lido’s vision imperative to offer a risk-minimized LST to customers but also its success is inextricably linked to Ethereum’s decentralization. Through horizontal scaling we feel like a continued focus on stETH positions Lido to succeed by capturing vertical layers that will either become or currently are dependent on a source of risk minized yield/collateral.

Now we need to position Lido to continue be competitive in the increasingly diverse LSP market. The question is on what basis should it compete?

Lido’s future moat depends on answers to these fundamental questions:

Questions of why & what for GOOSE 2
  1. While we don’t hold a strong opinion on MVI, If MVI poses a credible threat to the decentralization of Lido—and consequently Ethereum—should Lido explore alternative avenues to generate yield for stETH holders to mitigate this risk?
  2. What do institutions care about from an LST and LSP perspective (e.g. APR, NO customization, security, simplicity, liquidity, take rates, staking representatives, investor relations representatives, custody solutions, customer service, trust, track record of execution, technical risk)?
  3. What do custody providers want from their LSP and LST?
  4. What do stETH holders want (e.g. APR, decentralization, using stETH in restaking w\ slashing conditions, liquidity)?
  5. What does Ethereum want from Lido in the coming years?
  6. What do restaking platforms, lending platforms, and node operators want from Lido?
Questions of how for GOOSE 2
  1. Since Lido wants to capture institutional holders we need to understand what do current institutional delegate voting services (e.g. in the stock market with BlackRock, State Street, and Vanguard) excel at?
  2. While decentralized governance is a massive advantage Lido should be proud of, we wonder what barriers to institutional adoption the Lido DAO creates. For instance, should the fast track be longer than four days to allow these stakeholders or their institutional delegates time to vote?
  3. Are there previously allocated internal Lido resources that can be reused for product line expansion?
  4. Without a comprehensive analysis of the current efficiencies and inefficiencies of Lido’s governance system, how will we fully understand the impact of Lido’s product offering on governance capture – is it worth the risk in the short term to pursue expansion? (i.e. governance capture: the distribution of power and prevention of a single faction from dominating decision-making)
  5. How, by holding stETH, can we create an environment that is both positive for Ethereum and competes on APR?
  6. How can Lido care for the customer better than Coinbase or Binance staking?
  7. If institutions and their custody solutions do not want to run their own node on chain, how can we enable more customizability?

Thoughts On Beachhead Questions

Seeing as GOOSE focuses purely on the why and what of Lido’s future, in general, our thoughts on the above questions are as follows:

Custody Providers And Institutional Capital: We believe adding a fourth beachhead for Custody Providers to the three mentioned would be advantageous for Lido. Coinbase’s vertically integrated custody solution and Binance’s strategic partnership with Fireblocks are one of the primary advantages these centralized exchanges offer institutions over Lido’s current staking offering. Institutions deeply care about driving higher returns to holders in a manner that is liquid, fault-tolerant, risk-minimized, minimally liable, and battle-tested. By its very nature, Lido competes against CEX advantages by removing middlemen, decentralizing NOs, and maintaining a longstanding legacy. Lido has the potential to offer an LST with competitive APRs, liquidity, and less technical risk, making it a tempting choice. Yet, Lido does not currently offer minimal liability and should strengthen integrations with Custody Providers. Compounding Lido’s disadvantage, institutional holders may have a fiduciary responsibility to participate in Lido governance but have no trusted “traditional” institutional delegate representatives to offload this burdensome risk (recent legal precedent).

Ethereum Ecosystem And stETH Holders: As Hasu rightly mentioned, LST holders are “chasing the hot ball of rewards,” we see this trend lasting. Lido becoming more competitive on APRs is paramount for institutional and retail adoption. Although we are agnostic as to whether MVI is a constant and continuous credible threat to Lido’s future, the prospects of a looming potential decrease in issuance paired with the desire for the “lowest take rate that allows Lido to be sustainable and secure” indicates a need for other sources to impact APR positively. Consequently, we find it reasonable to diversify risk by pursuing other avenues to increase APR.

Restaking And Lending Platforms: The market for restaking may be immature, but we see lido’s action as a positive movement to capture downstream markets that could be primarily based with stETH. We hasten to mention that Restaking platforms’ desire for additional slashing conditions poses a risk to Lido NO that has not been comprehensively reported on. Continuing with our thoughts, Restaking and Lending platforms have many similarities; they both require liquidity and compete on the variable cost of that liquidity. Restaking is only as profitable as liquidity or validation cost is cheap, whereas Lending is only as profitable as the cost of capital is low. These two target beachheads are synergistic and want the same things from stETH.

Fee Switch

Unfortunately, we can not comment on the fee switch. We can say that higher APRs could be interesting for the 4 target beachheads we previously mentioned.

Validator Marketplace

A validator marketplace and performance threshold mechanism have been discussed for a while. It is unclear whether a validator marketplace will positively or negatively impact Lido’s main value proposition, decentralization. We have some concerns and questions that we think the community should seek answers to.

Validator Market Place Questions And Concerns
  1. How will the free validator marketplace affect institutional, restaking, lending, and custodian adoption of stETH? Are there synergistic opportunities between this initiative and others within GOOSE 2?
  2. If Ethereum moves towards a smaller issuance rate and the validator marketplace offers a larger percentage of rewards to those validators doing the best (as defined by this discussion), won’t the CM outcompete the SDVT and CSM, possibly leading to centralization?
  3. Is GOOSE 2 enforcing the “how” by stating, “Aligning risk/reward between more and less risky modules”?
  4. GOOSE 1’s three-year goals focus on decentralization and curating an opinionated validator set; how does the validator marketplace uphold these objectives?
  5. Is the validator marketplace a truly free market?

Thoughts On Validator Market Place Questions

GOOSE 2 enforcing methods of implementation: Our concern is that by explicitly stating that the validator marketplace must work across modules rather than being agnostic to the implementation of the marketplace, ingenuity is limited, and potential modification is required down the line. We provide an example in Appendix A of a system that is not cross-module, thus goes against GOOSE 2. Regardless of whether the system in Appendix A is substantive, the important point to emphasize is that it GOOSE 2 is supposed to maintain neutrality regarding the methodology (‘the how’), which it does not do.

Evaluation of GOOSE 2 implementation: Because the current GOOSE 2 proposal comments on how the validator marketplace should function, we will evaluate the implementation. At present, it is unclear how a meritocratic performance threshold across modules will affect decentralization of the NO set. While uncertain, it appears that the implementation across modules may be in opposition to the ReGOOSE & GOOSE 3-year goals of 5000 validators because the CM might be rewarded the most. With the system proposed in GOOSE 2, we must weigh the cost of centralizing Lido’s validator set by pushing out node operators from the CSM who will be outcompeted for rewards by the CM versus the aggregate quality of the set. Moreover, withdrawing from socialized reward systems may introduce module-specific dependencies.

Governance Capture Of Meritocratic Rewards Systems: To address potential centralization in a module rewards system, one might propose setting a ceiling on module rewards; however, this directly increases the risk of governance capture. An attribute of the CSM that we really enjoyed was how the smoothed rewards and performance threshold mechanism upholds a meritocratic self-elected validator set. In the CSM, an open, competitive, and positive form of liberal welfare elevates the quality of the CSM validator set. Whereas across modules, the permissioned, curated, and closed institutional NOs in the CM may result in higher levels of centralization and governance capture.

Overall Thoughts On GOOSE 2 Validator Marketplace

In total, whether or not the current module-based compensation impacts decentralization, GOOSE 2 should maintain an agnostic stance on the validator marketplace to allow for unfettered ideation and creation.

We agree that, if implemented correctly, an open market for validators enables diverse product offerings, node operator decentralization, and cost efficiency.

APPENDIX A

With the recent successful onboarding of 200 operators to the CSM we think that leaning into its open competitive nature may propel Lido to its three year NO decentralization goals (Source).

Our example demonstrates an approach that does not distribute rewards across modules. Instead, it aligns incentives in an automated manner that minimizes governance capture and centralization risks with institutional capital or custodian providers that demand more nuanced node operator setups and restaking platform users/AVSs willing to subsidize node operators for inheriting slashing conditions.

We do not wish to remove stakeholders’ right to choose by merely incentivizing the best node operators across modules. Instead, we set minimum standards for validators in the CSM who have consistently performed over a given period to be included in the on-demand validation service.

We cannot envision a scenario where large ETFs operate on-chain infrastructure, so “Bring Your Own Validator” (BYOV) doesn’t seem practical. Instead, we propose a two-sided market that leverages the elastic supply properties of the CSM to meet each institutional holder’s, custody provider’s, and AVS’s specific needs. If institutional holders want high availability and low slashing risk, they can pay for the increased complexity of node operations in an open market—specifically within the CSM—where validators can fulfill their requests and use the funds to scale operations up or down. If they require a specific Trusted Execution Environment (TEE) on their node, it will cost extra. If they don’t mind occasional downtime, they can pay less. If an AVS wants to add additional slashing conditions, it will incur additional costs. This system hinges on the accountability of node operators to run the requested hardware and fulfill orders on-demand. In line with the performance incentive thresholds in the CSM, validators who do not meet the client’s requested performance levels can be disproportionately penalized as a punitive measure.

The open validator market we propose leverages Lido’s existing infrastructure. The key point is that this strategy offers products to restaking platforms, institutions, and custodians while enabling automation, competition, and decentralization.

A thoughtful skeptic might worry that this approach could push solo stakers out of the market. However, this is not the case because those paying more should receive more customizable solutions, while those customers paying less won’t qualify to participate in the open market of validators. This creates a base validator set (analogous to a base fee) to handle standard requests and a priority validator set (similar to a priority fee) to manage top-tier requests. Finally, this system should still enable socialized rewards across modules, which we believe are essential for reducing module-specific risks.

We must note that further research on the demand for such a system and its potential efficacy would be prudent before integration.

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That’s not at all what’s happening in practice though: both SDVT and CSM have higher fee percent going to NOs, not lower. Whatever the actual design of the marketplace would be (have the DAO agree on following this route), seems like pricing mechanics proposed and implemented shall prize decentralization and resiliency on the validator set, while maintaining competitive conditions for NOs in general.

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Hey @kadmil, thank you so much for the quick response. We appreciate your feedback and engagement.

As of present, you are exactly correct. Both the SDVT and CSM have higher fee percentages going to NOs. The opinion of the future you shared is in reference to Lido’s own community staking module documentation stating:

“For example, the Curated module is generally expected to outperform CSM (since curated operators validate as a business), thereby contributing more significantly to Consensus Layer rewards. Conversely, an underperforming module may generate a lower reward return. To minimize the reward disparity, smoothing is employed by the Staking Router. This involves averaging the rewards across different modules, taking into account the number of active validators in each.”

If this information is incorrect in the community staking module documentation, we’d be happy to revise our viewpoint.

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Odaily Planet Daily News According to Spot On Chain monitoring, Chun Wang, co-founder of F2Pool and founder of Stakefish, sold 600,000 LDOs again for $667,000 after 10 months.
As an initial member of Lido DAO, he received 20 million LDO on December 17, 2020. Currently, he holds 8 million LDO ($8.69 million)

  • The value of the ldo token is being abandoned by traditional institutions because it has no value at all, and its protocol benefits do not benefit the holders at all. Why retail investors no longer trust and prefer to buy meme coins.
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I believe that the sooner contributors begin planning how to proceed, the better. As previously mentioned,

Members of the DAO Ops workstream have reached out to all delegates, and we are actively communicating that this discussion is underway.
Additionally, the standard timeframe for discussions within the Lido DAO is one week.

Considering that December is approaching—a time when many are less available due to various holidays worldwide and the potential unavailability of LDO holders to participate in voting and the operations that need to be completed before the end of the year—I’d strongly prefer to have all necessary votes completed by mid-December.

Therefore, initiating the Snapshot on October 21st allows sufficient time for a two-week inline discussion accompanied by voting, ensuring that decisions are made before the end-of-year slowdown. I mean community can continue the discussion during the voting period, maximizing our limited time.

After all, if LDO holders are opposed to the proposal, they will simply vote against it, and the community can address their concerns accordingly.

Given that there has not been any explicit pushback in this thread so far—instead, we have seen a deeper exploration of various topics—I believe that proceeding with the snapshot vote starting on October 21st is both acceptable and necessary to meet our timeline.

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First of all, thank you for your attention to the $LDO price, as an LDO holder, I hope that the community will develop at the same time, but also hope that the LDO price will increase. If staking through ETH ETF, will institutions choose Lido for staking? If we work with institutions, will it push more people to hold LDOs?LDO/BTC has been at a new low, LDO is obviously at a low price, and the team founder has been selling, is it because you yourself don’t have confidence in LDO?

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I really don’t understand what you guys are saying here (and in a few other places in the post which are a bit mind-warping). How does SDVT and CSM having higher rewards for NOs mean that curated module will push them out? How do validators get pushed out of CSM into the CM, exactly?

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Thank you for your feedback @Jenya_K!! Understanding the few key points you mention and other DAO operations members have spoken to us about:

  1. December’s potential lack of participation
  2. GOOSE is a requirement for EGGS and the current spend expires at the end of the year.
  3. The lack of explicit pushback.

We will change our stance to reflect that the vote should proceed as scheduled.

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Thanks Hasu and team for sharing this proposal. Feels like some light at the end of the tunnel if some of these items can be put into practice.

With all the recent debates in the community around Ethereum and its rollups that are eating away value from baselayer ETH, and some teams coming up and getting funded like Spire Labs, I’d think an interesting opportunity could be for the DAO to contemplate launching a based rollup powered by stETH in the backend and help make Ethereum great again. Helps grow the stETH TVL, helps increase ETH price, hence good for the revenue baseline.

It may create tension with strategic stETH distribution channels on the rollup level though, yes, as the DAO would heads on compete. It may very well be some risk worth taking.

Curious what the DAO contributors think about this idea?

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To directly answer your question, validators do not get pushed out of the CSM into the CM. With performance threshold mechanisms across modules, the CSM and SDVT would, in theory, earn less rewards because the CM outcompetes them in quality and reliability. As mentioned here, “the Curated Module is generally expected to outperform CSM (since curated operators validate as a business).”

Without socialization of rewards, it is reasonable to believe that the CSM and SDVT set will earn less, hence decreasing the number of operators. Not only that, but if performance threshold mechanisms across modules are implemented, it could result in the CM earning more at the cost of the CSM and SDVT modules. On the other hand, the current use of reward socialization does the opposite—it has the CM subsidize other modules. As mentioned here, “To minimize the reward disparity, smoothing is employed by the Staking Router.”

Since CM node operator setups cost more than CSM setups, we’d expect that the CM node operators are rewarded more. Yet, as you mentioned, both the SDVT and CSM have higher fee percentages going to NOs. What does this indicate?

Well, right now, CM NOs have not advocated for increasing rewards or pushed back on the Staking Router cutting their rewards, showing that the CM is sufficiently repaid for its work.

The question is, if there is already a performance threshold mechanism functioning in the CSM that works to uphold the best performers, if the CM is sufficiently remunerated for its work, and if reward socialization maintains stable APRs across the entire validator set, why would we remove reward socialization for performance mechanisms across modules at the cost of the SDVT/CSM and the benefit of the CM?

Sidenote: Decentralization of the set does not only depend on APR but also on the percentage of stake allocated to each module.

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There is no performance threshold mechanism across modules (not currently, and there isn’t one proposed at the moment either). The only performance threshold mechanism that exists is for CSM and it’s basically to discourage freeloaders in the module given its permissionless nature, and to mitigate the possibility of widespread malperformance (intended or otherwise). I can see the possibility of an inter-module performance calibration mechanism being created, but obviously if it is then it should be done with the proper care to not cause a disbalance in the appeal, accessibility, and decentralization objective of each module (much in the same way that all module designs have been done thus far).

You can still have socialization of rewards according to performance tiers, which is basically how the CSM performance threshold works. Given that, I don’t see why one would assume that an inter-module performance oracle would automatically mean that being an NO in one module would be less profitable than another.

They cost more in absolute terms but usually they do not cost more in terms in terms of marginal costs, since in Ethereum validation there are very substantive economies of scale with more validators (i.e. marginal revenues increase at a larger rate than marginal costs based on number of validators operated).

In general what this indicates to me is that the Ethereum community and Lido in general are willing to attach a premium to things that lead to better validator sets across various axes, at that at lower validator counts (as a result of the lower module stake share limits), the NO share needs to be more appreciable.

That’s not what the current threshold does. It merely discourages REALLY BAD performers.

Literally no one has proposed this. The general intent, as all of these modules mature, is to find equilibrium price points for these different types of supply of validators resulting in an overall configuration that is both cost-effective (note: here I’m not saying or advocating for cost-minimized, that kind of logic is both dangerous and ill-suited for things like network decentralization where costs alone are very bad predictors of quality of service w.r.t. intangibles related to decentralization) and primarily maintains the robustness of the validator set enabled by the protocol. It’s well understood by contributors and the Lido community writ large that true decentralization and robust validator sets come at a premium. Very often this may mean allowing for certain operators a larger share in rewards than the pure bottom-barrel market price since it’s not costs alone that determine how good an operator or validator set is, but it also means doing some work to try to figure out what that pure market price is and what the appropriate premium for decentralization should be, and how to measure it.

Really it goes one or two steps deeper than this. If for example the Curated Module is fairly well distributed across many node operators but CSM is dominated by 1-2 node operators, then curated at 90% + 10% CSM is arguably better from a decentralization perspective than curated at 70% + 30% CSM (especially if these CSM dominant NOs are also Curated NOs and/or large NOs outside of Lido).

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Is this actually true? In my experience working at a large multi-trillion dollar TradFi asset management firm, they are more worried about benchmarks and getting things wrong at that scale.

E.g. if all of their peers are using Coinbase and Binance for staking and they choose to use stETH for an extra 0.5%-1% APY but stETH gets hacked or something bad happens, then they will get fired and to put it bluntly “rekt” but if they go along with what their peers do and Coinbase gets hacked it’s not as bad because you were just doing what the industry standard is.

My take here is that institutions will follow what other institutions end up doing. Whatever Blackrock decides is their standard ETH staking system for their ETF will likely be more or less the standard. So if Blackrock decides that they want to use Coinbase as their staking provider or their custody provider as their staking provider over stETH, most likely 99% of other large asset managers will follow suit. No need to trailblaze if you’re not getting outsized return.

Another thing that I think institutions are very worried about is risk. Thus, I think there’s an additional barrier to entry, which is if something bad happens to stETH who do they sue and how can they be compensated? It’s a very clear and easy answer when you are using Binance, Coinbase, or any other centralized entity, but a lot less clear when you are dealing with a decentralized DAO.

The advantage that stETH has IMO is that there is much better liquidity and so if these ETFs allow for daily redemptions and whatnot, which means that the stETH market may be large enough to handle multi-million dollar swaps from stETH to ETH/USD moreso than a cbETH or alternative product.

I do have some concern stating explicitly that institutional staking should be a goal, rather than keeping it exploratory. I’m worried that we will spend a lot of time and realize that it’s ultimately a dead-end.

Has anyone here actually done any kind of work or spoken to these institutions like a Blackrock to understand whether they even view stETH as a viable product for a potential staked ETH ETF product? I feel like that should be a pretty simple question and easy answer to figure out and if the answer is NO, then we shouldn’t make it an official goal.

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Snapshot vote started

The GOOSE 2024 cycle: Lido DAO goals for 2025 Snapshot has started! Please cast your votes before Thu, 28 Nov 2024 16:00:00 GMT :pray:

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Thank you for your thorough, well-thought response. Unfortunately, I’ve led you into a semantic debate, which was not the intent.

Our objective with this post is to demonstrate that GOOSE should be agnostic to the implementation of a Validator Marketplace, but by stating, “Aligning risk/reward between more and less risky modules," it enforces the “how.”

While a discussion should be had on the how, I feel keeping in line with GOOSE’s objective to set the Why is more important. The reason we commented on the how in our forum post was because we felt it necessary to depict the uncertainty surrounding such an enforcement. You’ve correctly picked up on this uncertainty, and I’m grateful for your affirmation of how much more discovery is needed.

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