Lido, the absolute market leader in Ethereum staking, is facing competition. With Diva, a mature protocol enters the market that distributes distributed staking even further. It is trying to motivate Lido stakers to switch with a giveaway.
If you ask around the Ethereum community what the biggest threat is right now, many will immediately shout “LIDO”. Lido Finance, a staking pool, has captured around 32 percent of all stakes and is therefore close to the somewhat threatening one-third threshold.
Unlike exchanges like Coinbase or Kraken, Lido is not a centralized pool, but rather distributes the deposited Ether to around 30 validators. But the Lido DAO in particular, which is controlled by a few large owners of the LDO tokens, has a disturbingly strong influence, for example on the selection of validators.
“Where is the Vampire attack?” asked Ethereum developer Danny Ryan in a recent video. Where are the other pools that are aggressively trying to take market share from Lido by giving a bonus to those who switch? Where are the competent second movers? Why does Lido seem to have a monopoly-like position in liquid staking?
With Diva Staking, the longed-for second mover could come into play. In any case, Diva amassed more than 15,000 ETH in a few weeks through a vampire attack, a large portion presumably from Lido. That’s not really much – but it’s a promising start.
Like Lido, only better
Diva Staking and Lido Finance are both “liquid staking pools”: Users deposit Ether and receive certain tokens that represent one Ether and earn interest on the staking income. At Lido stETH, at Diva divETH. Meanwhile, the real Ether is distributed to nodes through the respective protocols, which increase them through staking.
This construction reduces the influence of individual actors. However, there remain ways in which they can work together to harm the network. For Lido we have gone through these risks in our article. Diva now claims to minimize them. The program is already in the name.
Diva stands for “Distributed Validation”. With this method, not only are the Ether deposited into the pool given to a distributed set of validators, as Lido does, but the validators themselves are split up and distributed across 16 nodes.
Each of these 16 nodes has a “key share”, a share of the validator’s key. The key is sliced up by BLS signatures in such a way that two-thirds of the shares must come together to create the signature a validator needs to do its job. This means that up to five of the 16 nodes can fail at the same time without affecting the system, while each validator must have at least eleven parties cooperate to control it. The nodes form their own P2P network to reach a two-thirds majority every few minutes.
This architecture has several key advantages. It is more resilient because of its redundancy, while increasing the number of actors that must cooperate to cause harm. At the same time, it lowers the threshold of Ether that an individual needs to stake with their node at home from 32 to one Ether. The pool can thus help to further expand the core infrastructure of Ethereum fullnodes.
Diva currently has 814 validators running on 352 nodes from 174 operators, if I’m interpreting the charts correctly. The pool is still in its early stages, but is already significantly more decentralized than Lido, where there are only 30 operators who also depend on the goodwill of the three major token holders in the DAO.
Die duale DAO
Diva is also organized by a DAO – a Decentralized Autonomous Organization that operates through voting by token holders. But here too we try to learn from the mistakes of others – especially Lido.
A dual model with two tokens is intended to prevent Diva from concentrating power on insiders and early investors, as is the case with Lido. The actual token, DIVA, does not allow to participate directly in the voting, only to delegate it to another party. This creates a “Delegated DIVA Token”, which gives you the right to vote. This means that the delegate level separates the large holders of tokens from the vote.
The DAO also has less direct power over the protocol than Lido. It has the mandate to “preserve staking through Diva as a public good.” If necessary, it should also ensure that it develops further.
However, it remains to be seen whether such a model is actually better at keeping the power of large stakeholders in check.
The Vampire Attack
With a vampire attack, Diva is now trying to take the top dog Lido Stakes away. The pool set up an “Early Staker” giveaway at the end of September. Anyone who deposits ETH or stETH – Lido’s tokens – in Diva not only receives DIVA tokens, but also an “Early POAP”, which stands for “Proof of Attendance Protocol” and means that someone who has taken part in something receives an NFT that proves this participation. It’s like a medal.
In addition, those who participate by October 22nd will have the chance to win one of five premium access to Rotki, a tool for asset management and accounting with crypto, including calculating taxes.
This modest bonus was enough to attract more than 16,500 Ether (a good $25.6 million) in just two weeks. A total of 23,709 ETH have already been deposited – creating 23,709 divETH.
Diva is off to a good start and is growing rapidly. But as impressive as the number of soon to be 24,000 Ether may sound, there is still a long way to go until the 8.83 million ETH that are in Lido. Basically, Diva has just made the first move, while Lido doesn’t even feel the bite of the vampire attack.