Hey @Letus thank you for a very important and precise questions.
I’m Max from Analytical workstream, and I’m really glad for the opportunity for a discussion around the possible designs - so would jump in, providing my vision, on at least some of them.
- Regarding the stVault “marketplace” → the biggest question one always asks about marketplaces: what is the curation process? Am I correct in presuming that Lido will not offer any curated “marketplace” and this will simply be a permissionless, open system where each operator must market their own offering on their own?
You are correct, there wouldn’t be any straightforward curation, as the intention of stVaults is creating a permissionless market, where stakers could express their preferences on how and with whom to stake, and Node Operators and builders can provide an options for that.
However, a completely open market is subject to market failures (for example due to unpriced externalities with correlation penalty due to slashing, or imperfect information within different approaches and view on risk valuation). Therefore I see DAO as an actor, setting and additional incentivization layer via flexible fee structure and risk mitigation levels. The examples of that could be: increased Reserve Ratio (share of collateral required to mint stETH) for vaults increasing systematic risks with centralization (for example staking with already huge Node Operator) or decreased fee for actors committed to providing public good for the network (e.g. increasing censorship resistance).
So each operator must market their offering on their own, but also taking into account the incentives and limits transparently put by the DAO.
- “Within stVaults, stake centralization is mitigated through economic measures. Node operators with a larger share of backing face higher fees and reduced mintable collateral. The system is designed so that users who choose node operators that improve validator set diversity receive better terms. This creates a natural incentive to support decentralization through individual staking choices.”
Can you break this down further? Is there any risk of node operators “cheating” the system via external incentives or otherwise?
This is one of the prime examples of this indirect market governance, build on idea of mitigating the risks connected with the stVaults ability to mint stETH.
Details on the suggested approach could be found in a corresponding thread, but the main idea is, as in my response above, build around:
- Stakers, Node Operators and consensus among them - is the main, and only factor of distribution within stVaults
- If Node operators are willing to share information about their setup, valuation on risk associated with stETH minting is lowered, as within lack of information the most conservative approach is suggested (e.g. high Reserve Ratio, assuming the highest systematic centralization risk)
- With lower risk valuation - better conditions in terms of Reserve Ratio could be provided
- The Risk framework is built based on Ethereum consensus specification, therefore, naturally, with increased concentration risk valuation increases, providing a better conditions in terms of Reserve Ratio for Node Operators with lower stake and incentive for diversification on the market, but (see 1) at the end it’s up to users to decide.