Recently, with the release of Vitalik’s research article, the focus has gradually returned to Ethereum. The article mainly discusses how to handle Ethereum’s huge transaction volume while maintaining decentralization. The solution provided by Vitalik is the Distributed Verifier Technology (DVT), which has once again increased the attention on Lido.
As we all know, Ethereum has transitioned from a consensus mechanism to a proof-of-stake mechanism after completing the merger. However, the current dominant staking service providers have monopolized a large market share, raising concerns about the centralization of staking services.
High performance load, centralized staking, Vitalik wants to solve the problem… everything goes back to the old narrative of “optimizing Ethereum”.
When it comes to DVT, the project that comes to mind in the market is SSV, the only project in the field of liquid staking that uses decentralized verification technology, with a market value of only about 200 million US dollars.
However, due to the relatively mature ecosystem on Ethereum, it is a good choice to avoid crowded investment directions and pursue relatively stable Beta returns after a technical narrative is reignited.
Therefore, in addition to SSV, Lido itself is also worth paying attention to.
Breaking the stereotype of centralized staking in Lido
A classic logical fallacy: whoever has a high market share in the liquid staking track is centralized.
From the data point of view, Lido occupies 30% of the market share, which indeed gives it an advantageous position. However, market share monopoly and whether the staking method is centralized are actually two different things.
Lido actually implemented the DVT solution emphasized by Vitalik as early as November last year to achieve so-called decentralized verification. Lido calls this solution the “Simple DVT Module” and is supported by ObolNetwork and ssv_network.
Putting aside the technical details of this solution, in layman’s terms, Lido now allows multiple node operators to manage different nodes to achieve consensus and fulfill the responsibilities of validators. At the same time, this also provides opportunities for wider participation of node operators, improving the decentralization, distribution, and flexibility of the network.
Now, 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 validators.
According to the data from the testnet, more than 300 participants and more than 175 individual and community stakers have participated, and the distribution of nodes is becoming more decentralized.
Therefore, the technological changes in Lido actually reveal a piece of information: the project already has a good fit with the recently mentioned DVT by Vitalik.
Whether the market funds will take advantage of this remains to be analyzed based on other fundamentals of Lido.
Understanding the data and seeking Beta returns
Besides the technology, how are the other fundamentals of Lido?
We all know that Lido is the leader in liquid staking, occupying more than 30% of the staking share. However, such absolute data cannot reveal its potential or the room for speculative funds.
But if we make a comparison, you can easily find the opportunity:
The ETH staked in Lido accounts for about 8% of the total ETH in the current market, while the market value of the LDO token is less than 1% of the total market value of ETH tokens, which may be underestimated in terms of market value contribution to liquid staking.
A more intuitive comparison is that after the Ethereum merge upgrade allows users to withdraw staked ETH, theoretically the ETH in each liquid staking pool will decrease. However, data from DefiLlama shows that Lido’s Total Value Locked (TVL) has increased rather than decreased in 2023, which means that the amount of ETH staked by users through Lido has actually increased.
At the same time, technical analysis from external analysts and KOLs shows that LDO is breaking through the resistance level of the past 1.5 years and the downtrend of the past 20 months.
Although pure technical analysis cannot guide investment research, a good fundamental (return to the DVT narrative) combined with a change in technical patterns actually provides market funds with some operational reasons and opportunities.
Indeed, betting on smaller projects like SSV and ObolNetwork may yield higher returns, but it also means more drastic price fluctuations.
The re-mention of DVT technology, market attention to Ethereum optimization narratives (such as parallel EVM), and the upcoming Cancun upgrade in the first quarter of this year all provide a visible opportunity window for funds to return to the Ethereum ecosystem.
While paying attention to low-market-cap projects, choosing to connect closely with the leading projects in the ETH-related track may be a safer choice to seek Beta returns.
After all, in the cryptocurrency market, old projects often quickly revive when no one pays attention, and then there are countless legitimate reasons given for this revival in the midst of information overload.
Making relatively safe decisions before the revival is much better than chasing the tail after the market buzzes.