What Is Obol Labs?

Obol Labs is a software development team dedicated to the research and development of Distributed Validator Technology (DVT). The team is passionate about addressing the node centralization problem often cited in liquidity staking protocols like Lido. As part of their efforts, they have built an HTTP middleware named Charon, based on the GoLang language. Charon enables any user, be it an individual, group, or community, to jointly run an Ethereum validator.

The team members of Obol Labs are scattered around the world, with the current count standing at approximately 20. Obol Labs was founded by Oisín Kyne, a Dublin University College graduate with over a decade of experience working in the tech industry. He previously served as a full-stack developer at ConsenSys, a blockchain technology company. Corver Roos, the technical head of Obol Labs, also brings years of software development experience, having served as the Chief Backend Engineer at Luno and a Software Architect at Genesis.

The Evolutionary Journey of Obol Labs

On September 9, 2021, Obol Labs received $100,000 worth of LDO tokens provided by Lido DAO. These funds were dedicated to the continued research and construction of trust-minimizing infrastructure technology. Fast forward to January 17, 2023, Obol secured $12.5 million in Series A funding. This financing round was co-led by Pantera Capital and Archetype, with additional participation from Coinbase Ventures, Nascent, BlockTower, Placeholder, Ethereal Ventures, Spartan, and IEX.

Key Milestones:

September 9, 2021: Obol Technologies received $100,000 in LDO tokens from Lido for researching Distributed Validator Technology.

February 23, 2022: The Obol prototype community was launched – a gateway for organizing, educating, and motivating community members to contribute to DVT and the Obol ecosystem.

July 8, 2022: The Athena testnet was launched.

July 13, 2022: The Obol Operator Community was initiated.

December 23, 2022: A pilot integration with Lido was completed, with 11 Lido Node Operators (NO) participating in the Goerli testnet pilot testing.

January 17, 2023: They secured $12.5 million in funding to develop a decentralized Ethereum staking infrastructure.

DVT (Distributed Validator Technology)

To mitigate issues of single point failures and the degree of decentralization in Ethereum nodes, researchers from the Ethereum Foundation, Aditya Asgaonkar and Carl Beekhuizen, introduced the SSV mechanism (Secret Sharing Technology) in a 2019 paper. This was later developed into the current DVT — Distributed Validator Technology — as the technology evolved.

The DVT technology is a critical component in the Ethereum upgrade path, serving a pivotal role in allowing multiple individuals, groups, or communities to collectively operate a single Ethereum validator. This shifts the association of validators with nodes from a one-to-one relationship to one-to-many. With the aid of DVT, the security and online resilience of Ethereum validators can be significantly enhanced.

The architectural principle of DVT operates as follows: Initially, a single validator’s key is split into a shareable key set via DKG (Distributed Key Generation), then the keys are securely distributed amongst nodes using multi-party computation (MPC). This ensures each node can verify using the distributed key.

Once a node has completed verification of the network block information, it submits its results. At this stage, the Shamir Secret Sharing technology is required to rebuild the entire validator key within a predefined number of KeyShares, i.e., aggregating multiple verification inputs. Only when a node count exceeding a preset threshold (n ≥ 3f + 1) successfully provides verification results, can the validator key be rebuilt and the final verification result submitted to Ethereum.

Correspondingly, the network employs the Istanbul Byzantine Fault Tolerance (IBFT) consensus algorithm. It randomly selects a validator node (KeyShares) in the DV cluster to propose blocks and share information with other participants. If more than the threshold number of nodes within a single cluster agree that the block is valid, it is then added to the blockchain. If the leader goes offline, the IBFT algorithm will reassign the role to another node in the cluster within 12 seconds.

For instance, if a DV cluster comprises four nodes, each responsible for running a single validator, validation proof can only be submitted to Ethereum when at least three nodes have participated in submitting the proof. This implies that if one of the four nodes is offline and unable to submit the validation result on time, the validator will still not be affected. Similarly, if a single validator is run by seven nodes, the validator can operate normally as long as five of the seven nodes remain online.

Such a system setting allows node operators to have higher fault tolerance. Presently, operators maintain the stability of validators by using an active-passive redundancy mechanism (one server starts, another one is on standby; if the main server crashes, the other waits to go online). This can be costly. The introduction of DVT technology allows node operators to dynamically adjust node deployment and configuration, mitigating the risk of validators incurring penalties due to double signing caused by faulty active-passive redundancy implementations.

Middleware in GoLang

Charon, a middleware developed by Obol, facilitates the simultaneous operation of a single validator across multiple nodes, enabling any existing Ethereum validator client to function as part of a distributed validator.

Positioned between the beacon chain client and the validator client, Charon establishes a communication network for node clusters, manages validator key distribution, and reaches network information consensus under the Istanbul Byzantine Fault Tolerance (IBFT) algorithm. It integrates DVT technology and, in the form of middleware, realizes the operation of a single validator across multiple nodes.

Users can apply to run a validator or join other people’s DV clusters after linking their wallets on the official website like the following image:

With the assistance of the DV launchpad—an intuitive user interface—operators can set cluster terms, add all operators, and upon passing DV launchpad’s identity verification, provide the generated cluster definition file to their Charon clients. This, in turn, establishes a secure and encrypted communication line with other nodes.

Once all operators have successfully signed and joined the cluster, they can create a distributed validator private key by executing the DKG, and then complete the synchronization of the Ethereum execution layer client and consensus layer client to activate the cluster. Subsequently, the cluster’s operation can be monitored via the Grafana dashboard provided by Obol official, as the following image:

Charon also supports integration with MEV-Boost, a product by Flashbots, and collaborates with MEV seekers. The cluster can communicate with multiple block builders to propose blocks in order to earn additional MEV rewards. (Note that this integration is still in the alpha stage, and a significant amount of configuration may be required for the successful operation of the nodes.)

Testnet and Future Plans

According to official disclosures, it has seen the participation of 150 DV clusters in testing. The authority noted that the Bia testnet does not incorporate a token reward mechanism, but users who participate in the testing can earn corresponding POAPs (Proof of Attendance Protocol).

As indicated by the community, possession of five POAPs can earn one the title of Junior Community Ambassador, while twenty POAPs can elevate one to the position of Senior Ambassador.

Earlier on, Lido and Obol successfully conducted a pilot test with this network. Among Lido’s node operators, two teams participated in the testing. One team was composed of HashQuark, CryptoManufaktur, Nethermind, and Simply Staking, while the other team included DSRV, Kukis Global, Chorus One, Staking Facilities, Blockscape, Everstake, and Stakely.

Lido has expressed its intention to continue additional testing on the Obol and SSV networks in 2023. Furthermore, it is anticipated that the V2 version might integrate Obol as one of the solutions to implement distributed validators.

Opportunities in the Competitive Landscape

The primary projects currently focused on the development of DVT technology are Obol and SSV, both of which utilize the fundamental logic of DVT technology to build their products. SSV uses DVT technology to create a comprehensive network for operators that can directly interface with liquidity pledge protocols such as Lido and Frax. It provides these protocols with distributed operator network services. Correspondingly, SSV receives platform fees as income, a portion of which enters the treasury for community governance.

Obol, on the other hand, offers an intermediary approach allowing any node operator, large group, or individual users to utilize it directly, or form DV clusters with others on the platform, jointly operating a single validator.

While their implementation methods differ, both are essential infrastructures for the next phase of liquidity pledging, enabling any user to participate in the protocol’s node network by pledging a low-threshold amount of ETH. For instance, Lido has announced the launch of a modular architecture, the Staking Router, in its V2 version, which allows anyone (including individual pledgers) to become a node operator.

This architectural design requires collaboration with Obol Labs or SSV.Network, leveraging the distributed key functionality brought by DVT technology to enable any node to join Lido’s validator network. Moreover, protocols such as Stader and Stakewise have started introducing DVT technology into their liquidity pledge services. These liquidity pledge protocols are expected to launch their DVT-based products this year. The combination of liquidity pledge and DVT technology has become a key product direction in the LSD field.

Following Ethereum’s Shanghai upgrade, previously pledged ETH will be unlocked, and the market might start choosing to pledge ETH to platforms offering higher returns. For instance, Yearn has announced that it will launch a new product, yETH - a tokenized basket of LSD derivative assets offering users higher returns.

Conclusion

Upon the completion of Ethereum’s upgrade, the LSD landscape is inevitably set to experience a new shift. Not only will the ETH stakes in the market gradually gravitate towards higher yield platforms, but DVT technology is also slated for formal implementation this year. Distributed operator networks like SSV can directly offer ETH staking services for DeFi protocols. Alternatively, liquidity staking protocols might begin incorporating SSV and Obol into their product lines, thereby enabling more users to join the protocol as node operators.

In essence, DVT technology will be a significant technical aspect in Ethereum’s future narrative. The performance of the SSV token, related to the current concept, has shown relative strength since the beginning of 2023. Thus, despite Obol, a key product of the same sector, not yet having issued its token, it is expected to launch its mainnet this year. As a forerunner in the DVT landscape, we anticipate its product offerings following the new upgrade of Ethereum.