With the release of Vitalik’s research article, the attention in the cryptocurrency market has gradually shifted back to Ethereum. The article primarily discusses how to handle Ethereum’s massive transaction volume while maintaining decentralization. Vitalik’s proposed solution is Distributed Verifier Technology (DVT), which has once again raised the interest in Lido.
Background:
Vitalik updates Ethereum development roadmap! Reviewing the progress of the 6 major development directions this year.
Ethereum’s challenge is how to handle its massive transaction volume without sacrificing decentralization. In his research, Vitalik proposes a solution: using Distributed Verifier Technology (DVT) to build a decentralized staking pool.
As we all know, Ethereum transitioned from a consensus mechanism to Proof of Stake (POS) after the merge. However, a few major staking service providers currently dominate the market, raising concerns about centralization in staking services.
High performance load, centralization of staking, Vitalik’s attempt to solve the problem… Everything comes back to the narrative of “optimizing Ethereum”.
When it comes to DVT, the first project that comes to mind in the market is SSV – the only project in the liquidity staking field that uses distributed verification technology, with a market value of only around $200 million.
Further reading: Distributed Verifier Technology (DVT): The future of decentralized staking, shaking off centralization.
However, due to the relatively mature ecosystem on Ethereum, it may be a good choice to avoid crowded investment directions and pursue relatively stable Beta returns after a technology narrative resurgence.
Therefore, in addition to SSV, Lido itself is also worth paying attention to.
Breaking the stereotype of centralized staking in LDO
A classic logical fallacy: whoever has a high market share in the liquidity staking race is considered centralized.
From the data, Lido occupies 30% of the market share, indeed enjoying a dominant position. However, market share monopoly and the centralization of staking are two separate matters.
Market share only indicates that you are the leader, possibly a monopoly. But the technology used by the leader for staking still needs to be examined closely.
In fact, as early as November last year, Lido had already implemented the DVT solution emphasized by Vitalik to achieve so-called distributed verification. Lido refers to this solution as the “Simple DVT Module” and is supported by ObolNetwork and ssv_network.
Putting aside the technical details of this solution, in simple terms, Lido now allows multiple node operators to manage different nodes to achieve consensus and fulfill the responsibilities of validators. This also provides opportunities for wider participation of node operators, enhancing decentralization, distribution, and flexibility.
Currently, the Simple DVT Module allows individual stakers, community stakers, existing node operators, and other staking organizations to participate in Lido’s testnet, and will subsequently update the staking network on the mainnet to include a more diverse range of verifiers.
Based on the data from the testnet, there are more than 300 participants and over 175 individual and community stakers globally, indicating a growing decentralization of nodes.
Therefore, the technological changes in Lido actually reveal that the project aligns well with the recently emphasized DVT by Vitalik.
Whether the market funds will seize this opportunity for speculation still requires an analysis of other fundamental data of Lido.
Understanding the data, seeking Beta returns
Beyond technology, how are the other fundamentals of Lido?
We all know that Lido is the leader in liquidity staking, occupying over 30% of the staking share. However, this absolute data alone cannot reveal its potential or the space for speculative trading.
But if we make a comparison, you can easily identify the opportunities:
The ETH staked in Lido accounts for approximately 8% of the total ETH in the current market. In contrast, the market value of LDO tokens is less than 1% of the total market value of ETH tokens – the market value may be underestimated relative to the contribution of liquidity staking.
A more intuitive comparison is that after the Ethereum merge upgrade allows users to withdraw staked ETH, theoretically the ETH in various liquidity staking pools should decrease. However, data from DefiLlama shows that Lido’s Total Value Locked (TVL) has increased in 2023, indicating that more ETH has been staked through Lido.
At the same time, technical analysis from external analysts and KOLs shows that LDO is breaking through the resistance level of the past year and a half, as well as the downtrend of nearly 20 months.
Although pure technical analysis cannot guide investment research, the combination of solid fundamentals (re-emphasizing the DVT narrative) and changes in technical patterns actually provide market funds with a certain basis and space for trading.
Indeed, betting on smaller projects like SSV and ObolNetwork may yield higher returns, but it also means more drastic price fluctuations for the tokens.
The resurgence of the DVT narrative, market attention to Ethereum optimization narratives (such as parallel EVM), and the upcoming Cancun upgrade in the first quarter of this year all provide visible opportunities and windows for capital to return to the Ethereum ecosystem.
While paying attention to low market cap projects, choosing to connect with the leading projects closely related to ETH may also be a prudent and relatively secure option to seek Beta returns.
After all, in the cryptocurrency market, old projects often quickly revive in obscurity and then find numerous justifications for the revival during information overload.
Making relatively safe decisions before the revival is far better than trying to catch the tail of the fish in the midst of the noise.