Lido V2 upgrade plan announced! Will allow staking ETH withdrawals, more diverse node operators

With the upcoming Shanghai upgrade of Ethereum in the next few months, leading staking protocol Lido is also set to undergo an upgrade. In addition to allowing the conversion of staked ETH (stETH) back to ETH, it will also open up node operator positions to the public, further decentralizing the protocol.

Two Key Upgrades in Lido V2

According to Lido's announcement, the upcoming V2 upgrade will focus on two main points and is expected to take place in March and April:

1. Staking Router: With the new modular architecture, anyone can become a new node operator, aiming to create a more diverse validation ecosystem.

2. Staking Withdrawal: Allows stETH holders to withdraw their originally staked ETH on a 1:1 basis from Lido, giving users the freedom to stake and unstake as they please.

Introduction of Staking Router

The Staking Router is a major upgrade for the Lido protocol, moving operator registration to a modular and more composable framework, allowing stakers, developers, and node operators to coordinate frictionlessly on Lido and benefit individually, including:

• Stakers: With more node service providers, user staked deposits will be distributed among more providers, reducing network downtime risks and increasing Ethereum's flexibility.
• Node Operators: Through the new modules, other types of node operators such as individual stakers, small groups, DAOs, and professional node operators will have more ways to participate in the Lido protocol.
• Developers: Users can propose and execute models by utilizing different combinations of node operators and their competitive features such as coverage options and fee structures, and can apply to join the Staking Router's module set.

Additionally, the Staking Router will allow individual modules to operate with customized parameters, such as fees or collateral requirements, thereby adding more flexibility to validators.

Staking Withdrawal Modes and Process

The staking withdrawal mechanism in the Lido protocol is designed with two modes, Turbo and Bunker.

Turbo mode is the default mode where ETH from user deposits and rewards can be quickly withdrawn. The withdrawal time frame is not fixed, but in the best-case scenario, withdrawal requests can be processed within hours. Bunker mode, on the other hand, is meant to prevent emergencies by delaying withdrawals and negative impacts across the protocol, preventing users familiar with the protocol from gaining unfair advantages.

The withdrawal process consists of three steps:

1. Request: Users need to lock stETH as a withdrawal request.
2. Fulfillment: The protocol acquires ETH to fulfill the withdrawal request, destroys the user's stETH when locking ETH, and marks the withdrawal request as claimable.
3. Claim: Users can withdraw their initially staked ETH at any time.

It's important to note that users will not earn staking rewards while waiting in the withdrawal queue.

Differences with Rocket Pool

In addition to ongoing protocol upgrades by Lido, another staking protocol, Rocket Pool, has been gaining attention recently. Compared to Lido, Rocket Pool's feature lies in its Minipool function, which allows users to run an Ethereum node with just 16 ETH, albeit requiring a certain amount of RPL tokens as insurance, which is much simpler compared to 32 ETH.

According to Rated, Rocket Pool's staking percentage is 2.31%, although significantly lower than Lido's 29.44%, this figure has grown by 58% compared to the middle of last year.