The Lido liquid staking protocol is about to launch staking reward withdrawals and an improved staking architecture with the announcement of the upcoming Lido V2 update.
Two of the main points of the planned update are the introduction by Lido of its new staking router and the enabling of withdrawals for Ethereum (ETH) stakers.
The Staking Router introduces a modular architectural design that enables on-ramps development for new node operators, including solo stakers, decentralized autonomous organizations (DAOs), and distributed validator technology clusters.. The latter is a protocol that allows validation tasks to be shared between several nodes.
The Staking Router is expected to allow Lido to become an extensible protocol thanks to its modular design. Validator 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 validator keys, and allocate bets and rewards among your operators.
Enabling liquid staking rewards withdrawals 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 has been tentatively set for activation after the Ethereum Shanghai update.
Users wishing to withdraw ETH will have to follow a proposed request and claim process. A request will require users to lock stETH to initiate the withdrawal. The protocol fetches ETH to satisfy the request, locks the ETH and burns the locked stETH, and then marks the request as reclaimable for the user to retrieve in their ETH.
A brief schedule outlines development milestones through February and April 2023, where the code will be tested on the Goerli testnet before the retirement credential rotation ceremony and 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 newer smart contract-based 0x01 signatures.
Lido intends to rotate credentials to smart contract-based ones through a DAO ceremony, in which participants will sign a rotation message that will then be transmitted to the consensus layer network.
As previously reported, the upcoming Ethereum Shanghai Update has seen Lido Finance lead the charge as the largest decentralized finance protocol, with over $8 billion in value staked on its platform heading into 2023.
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