Lido plans to level up ahead of Ethereum Shanghai hard fork upgrade

Published at: Feb. 7, 2023

Liquid staking protocol Lido is set to roll out staking reward withdrawals and improved staking architecture with the announcement of the upcoming Lido V2 upgrade.

Two major focal points of the planned upgrade include Lido’s introduction of its new Staking Router and the enabling of withdrawals for Ethereum (ETH) stakers.

The Staking Router introduces a modular architectural design allowing the development of on-ramps for new node operators, including solo stakers, decentralized autonomous organizations (DAOs) and distributed validator technology clusters. The latter is a protocol that allows validator duties to be shared across multiple nodes.

The Staking Router is envisaged to allow Lido to become an extensible protocol due to its modular design. Validator modules will be treated as sets of validator pools that can act as supply for the protocol. Modules will manage an internal operator registry, store validator keys and allocate stake and rewards between its operators.

The enabling of liquid staking rewards withdrawals allows stETH holders to withdraw funds from Lido at a 1:1 ratio in ETH. An overview of the upgrade shared with Cointelegraph notes that the withdrawals feature also mitigates risks in the secondary market, which is provisionally set for activation after Ethereum’s Shanghai upgrade.

Users looking to withdraw ETH will have to follow a proposed request and claim process. A request will require users to lock stETH to start the withdrawal. The protocol sources ETH to fulfill the request, locks the ETH and burns the locked stETH and then marks the request as claimable for the user to retrieve to their ETH.

A short timeline outlines development milestones through February to April 2023, where code will be tested on the Goerli Testnet before a withdrawal credential rotation ceremony and the upgrade itself are set take place.

The withdrawal credential rotation is necessary due to a discrepancy between Lido protocol validators using BLS-based 0x00 signatures and those using newer smart-contract based 0x01 signatures.

Lido intends to rotate the credentials to smart contract-based through a DAO ceremony, where participants will sign a rotation message that will then be broadcast to the consensus layer network.

As previously reported, Ethereum’s upcoming Shanghai upgrade has seen Lido Finance lead the charge as the largest Decentralized Finance protocol, with over $8 billion of value staked on its platform going into 2023.