Lido DAO

Tl;DR

It is proposed to complete the Early Adoption phase and transition CSM to a fully permissionless mode by activating public release alongside a share increase from 1% to 2% to ensure further expansion of the Lido protocol decentralization.

Preface

Community Staking Module (CSM) was added to the Lido on Ethereum protocol on October 25, 2024, via on-chain vote #180. This was a significant step towards decentralization of the Lido protocol. Since adding the module, more than 230 Node Operators have joined the protocol (see Community staking dashboard → Node Operators).

One of the main factors limiting further decentralization of the Lido on Ethereum protocol is the current share limit of the CSM. Due to security and safety considerations, the initial share limit was set to 1% of the protocol Total Value Locked (TVL). Today, CSM has already occupied ~0.56% of the protocol TVL and keeps growing (see Community staking dashboard → Current share), making the question of raising the share limit increasingly relevant.

On-chain data about CSM validators’ performance collected by the Rated network shows that, on average, CSM validators perform slightly below Lido Curated operators.

CSM is currently in its Early Adoption phase, which ensures that most Node Operators are independent participants, each runs up to 12 validators, with an average validator count of slightly fewer than 7 validators per Node Operator.

According to the on-chain data, the number of new operators joining CSM weekly has decreased, indicating that most of the addresses eligible for Early Adoption had already joined. Also, several participants have expressed interest (in Lido Discord) in running more than 12 validators, which is currently restricted.

To sum up, the Early Adoption phase means that only eligible participants can join the module and they have a limit of 12 validators per Node Operator. These two factors, in turn, mean that CSM is not yet fully permissionless. And the Lido DAO faces an important topic to consider - turning off the Early Adoption phase to make the module fully permissionless.

The current distribution of validators among Node Operators in the CSM and the module’s generally acceptable performance suggest a stable foundation. Based on this, it is reasonable to assume that the risks of the proposed changes can be effectively evaluated using the existing risk assessment research.

Next steps

If this proposal is supported by the DAO, these actions will be included in one of the upcoming on-chain votes.