NEWSLETTER
The Lido liquid staking protocol is set to implement staking rewards withdrawals and improved staking architecture with the announcement of the next Lido V2 update.
Two main focal points of the planned upgrade include Lido’s introduction of its new staking router and enabling withdrawals for Ethereum (ETH) stakers.
The staking router features a modular architectural design that enables on-ramps development for new node operators, including individual stakers, decentralized autonomous organizations (DAOs), and distributed validation technology clusters. The latter is a protocol that allows validator tasks to be shared among several nodes.
The staking router is envisioned to allow Lido to become an extensible protocol due to its modular design. Validation modules will be treated as sets of validator groups that can act as a supply for the protocol. The modules will manage an internal operator registry, store validation keys, and allocate bets and rewards among your operators.
The liquid staking rewards withdrawal enablement allows stETH holders to withdraw funds from Lido at a 1:1 ratio in ETH. An overview of the update shared with Cointelegraph notes that the withdrawals feature also mitigates risks in the secondary market, which is tentatively set to go live after Ethereum’s Shanghai update.
Related: Lido Surpasses MakerDAO and Now Has the Highest TVL in DeFi
Users wishing to withdraw ETH will need to follow a proposed request and claim process. A request will require users to lock stETH in order to initiate the withdrawal. The protocol generates ETH to fulfill the request, locks the ETH and burns the locked stETH and then marks the request as reclaimable for the user to recover in their ETH.
A brief timeline outlines development milestones from February to April 2023, where the code will be tested on the Goerli Testnet before a retirement credential rotation ceremony and the actual upgrade take place.
Withdrawal credential rotation is required due to a discrepancy between Lido protocol validators using BLS-based 0x00 signatures and those using 0x01 signatures based on newer smart contracts.
Lido intends to rotate the credentials to be based on smart contracts through a DAO ceremony, where participants will sign a rotation message that will then be transmitted to the consensus layer network.
As previously reported, Ethereum’s upcoming Shanghai Update has seen Lido Finance lead the charge as the largest decentralized finance protocol, with over $8 billion worth of stakes on its platform through 2023.
