SSV Tokenomics

ssv.network allows stakers to select multiple staking providers by securely splitting and distributing their validator key between multiple non trusting nodes, or operators. By splitting the validator key into KeyShares and distributing them over multiple nodes, active-active redundancy is achieved, promoting validator reliability. And, security is enhanced, as the key can now be stored securely offline, while the KeyShares that represent it operate the validator.

The ETH staking space is growing and a potential ETH staker has a variety of options for running a validator to help secure the Ethereum protocol and generate ETH rewards for doing so. Because SSV offers stakers a much higher level of security and reliability, those who choose to use it will be required to pay a fee in SSV tokens for the nodes/operators they select.

Read more about DVT / SSV technology

The SSV Network Participants

• Operators – Operate and maintain SSV nodes running validators on behalf of stakers and generating ETH rewards for them. In return for their services, operators receive SSV tokens as payment from stakers.
• Stakers – Put 32 ETH ”at stake” on the Beacon Chain and own a validator that will add new blocks. Stakers pay fees to operators in SSV and receive ETH rewards in return for their validator(s) securing the network.
• Liquidators – Actors that work behind the scenes to keep the system solvent by signaling stakers when they have insufficient balances to pay their operators and liquidate their account. Liquidators receive compensation in SSV for performing a successful liquidation.

SSV Token Overview

SSV token has two main use cases:

1. ssv.network is an open source decentralized protocol. As such, the network governance is distributed to the DAO. DAO suggestions and votes are limited to SSV token holders, allowing them to shape the DAO.
2. SSV token is used as the network’s payment layer to create economic incentives for node operators. Each node operator is able to determine their desired fee and compete with other operators for stakers. Choosing a specific set of operators requires stakers to keep an SSV balance, as the fee payment to be allocated between the selected operators, for as long as they stake on ssv.network. For reference, the ‘pay per node’ model has already been successfully implemented in other networks, such as The Graph and Chainlink.

SSV Token Utility

The SSV token serves as a reciprocal reward mechanism between operators and validators. As such:

• Operators receive SSV tokens from and generate ETH rewards for stakers
• Stakers pay SSV to operators and receive ETH rewards directly from the blockchain

At no point do operators hold or have access to a Staker’s ETH (both deposited principle and earned rewards). The operator’s role is solely to operate and maintain the validators generating the ETH rewards, but they have nothing to do with distributing those rewards to stakers.

In addition, the relationship between stakers and operators ensures that SSV fees will always remain smaller than the expected ETH returns. If a staker is expecting to receive 100 USD per year by staking their ETH, their SSV fee will always be below that amount.

SSV is designed to maximize value for both Stakers and Operators:

• Transparency – The protocol promotes a ‘free-market’ of staking providers (operators) offering their services to stakers and competing with each other for TVL (Total Value Locked).
• Cost Optimization – Stakers are able to have complete control over their cost structure when choosing node operators on the network. Stakers can also redistribute their KeyShares to a new group of operators to reduce their cost of using the network.
• Inflows > Outflows – Stakers are required to hold a minimum amount of SSV tokens as collateral to cover potential liquidation. It is mandated that stakers always hold more SSV than the amount they will need to distribute to operators at any given time. This allows the network to mitigate any selling pressure created by operators deciding to realize their SSV gains. This collateral also keeps the network solvent, preventing a situation where operators are not rewarded for performing their duties.

Validators, Costs & Operator Selection

Stakers will distribute their validator KeyShares to 4 or more operator nodes on the network. When choosing specific nodes, many considerations come into account for the staker including: performance, network effect, verified node, client diversity and, yes of course, price.

Each operator in the node cluster will determine their own specific fee in SSV tokens as their yearly operator fee. For example, if all 4 operators price their service at 1 SSV per year, the total yearly cost for the staker will be 4 SSV. Therefore, the staker will need to deposit 4 SSV to his wallet to stake with their chosen operators for an entire year. Stakers can choose to deposit less than an entire years’ worth of SSV balance as long as the amount is greater than their ‘liquidation collateral’.

Operator selection and cost calculation mockup:

Fee distribution from staker to operator takes place continuously with each passing block, as the staker is effectively making ‘micro payments’ to their node cluster on an ongoing basis. Instead of lockups or an obscure, one-off payment model, ssv.network allows stakers to have maximum transparency, flexibility and capital efficiency when it comes to fees.

If the staker wishes to discontinue service, they are eligible to opt-out at any point in time and retrieve the remaining unused SSV balance from their wallet. When the staker removes themself from the network, the operator cluster will effectively cease to manage their validator and they will be able to migrate to a different service or become a DIY staker without fear of penalties or slashing risks.

Network Fee

In addition to operator fees, stakers are also required to pay a ‘network fee’. The network fee is a fixed cost determined by the ssv.network DAO, charged per validator, and added to the overall yearly cost of the node cluster,. The network fee will flow directly into the DAO treasury and can be used to fund further development of the ecosystem, and activities that have passed the DAO voting process.

Similar to operator fees, the network fee will be deducted from a staker’s SSV balance over time. However, the network fee will be a constant factor in a staker’s cost basis, regardless of the operator cluster they choose, and they will always be required to pay the network fee for using the protocol.

Main factors in determining the Network Fee:

1. # of validators/ETH staked – The amount of ETH staked using ssv.network determines the network’s ability to generate fees. More ETH staked increases fee generation and is good for the overall health of the network.
2. ETH staking APR – Ethereum’s APY will ultimately determine the network’s ability to raise or lower network fees. The higher the APY, the more room there is to raise the network fee.
3. Operator charges – The network fee should always be lower than the average operator cost. For example, if the average cost of using a node on the network is 1 SSV per year , we can assume the network fee will be less than 1 SSV per year.
4. SSV token price – The higher the SSV token price, the lower the network fee is likely to be.

Operators – Rewards & Fee Distribution

ssv.network is unique in the transparency and free-market competition it introduces to the ETH staking space. Nodes will have to compete with one another on many parameters, including pricing. Ultimately, free competition will empower stakers to lower their costs and optimize their staking returns.

Operators, acting in a cluster of nodes, will enjoy the benefit of fault-tolerance and ultra-low slashing risk. When less risk is involved in offering a service, pricing can be more competitive and service providers can be much more capital efficient, by reducing insurance costs, etc.

It’s important to note that operators within a cluster act in unison to generate ETH rewards for stakers. If one node is offline for a given block but the remaining nodes in the cluster are able to execute the duty successfully, all of the nodes in the cluster will receive their SSV for the given block. Therefore, the fault-tolerance provided by SSV is just as valuable to the operator as it is to the staker.

Operator Reward Pricing

Operators are able to change their fees at any point in time,however, there are restrictions on the protocol level that limit the operator’s ability to rapidly raise fees. This protects stakers from sudden spikes in their usage costs.

Operator fee changes follow this set of guidelines:

1. Change request – An operator broadcasts the new fee to the network.
2. Waiting period – After the new fee has been broadcast, the operator is required to wait X amount of days before executing it. This will allow stakers time to react in the event they need to add to their account balance or wish to change operators.
3. Execution period – After the waiting period is over, the operator will have Y amount of days to execute the change. If the operator does not execute the change before the expiration, the fee will remain as is. This is designed to prevent a situation where an operator requests a fee change and implements it long after the waiting period is over.

Operators can lower their prices as much or as often as they wish, but they are limited in their ability to raise their fees. The exact % limitation per fee change request will ultimately be determined by a DAO vote. For example, if set at 5%, an operator will not be able to raise their fee by more than 5% for each request.

Main factors in determining operator fees and pricing:

• # of KeyShares – The more keys an operator manages, the more SSV they are able to generate.
• Pricing (with respect to the market) – The more competitive an operator is with pricing and fees, the more attractive they will be to stakers.
• Performance – High performance over time will likely be more attractive to stakers.
• Dual role – Many of the operators in the network will be stakers as well and there is a high likelihood that staking services will offer SSV-based staking to their users. In such a scenario, operators that generate rewards from the network will divert a portion of their earnings back into the network in fees.
• SSV price – The higher the SSV token price, the lower the average operator fee is likely to be.
• Diversity – Stakers will prefer selecting a diversified group of operator nodes for better fault-tolerance and decentralization. For example, if all the nodes on the network are running a Prysm validator client, a node which runs a different client, like Lighthouse, might be more appealing to stakers.

Liquidation and Liquidation Collateral

As mentioned, in order to ensure that operators are always compensated for their efforts, and to keep the network solvent, each staker must deposit a sufficient balance of SSV tokens to their account for each validator they run on the network to be used as a “liquidation collateral”.

The collateral amount is derived from the operator fee and is aimed at maintaining a sufficient balance to cover the operator costs for a set number of blocks, or the “liquidation threshold period”, a period of time (block height) that is configured and decided on by the DAO.

Because operator payment is done on a continuous basis, if the staker’s SSV balance drops below the threshold balance, they are at risk of being liquidated and their respective validators will cease to perform network duties.

Liquidation collateral is the incentive for liquidators to constantly monitor the network and liquidate these accounts, which triggers the validator’s operator cluster to terminate their service and stop managing their validator..

Effects of SSV Price Fluctuation

Operators have certain flexibility in changing their fee structure. In the event that SSV token price appreciates, it would make sense that operators will react by lowering their service cost. Of course, the opposite will be true in the event that SSV token price depreciates.

Operators that are not competitive and reactive to market fluctuations will be at risk of losing stakers to other, more cost effective operators.

Conclusion

SSV-based staking is a network-wide effort aimed at decentralizing Ethereum’s security layer or ‘layer 0’. The ssv.network can be regarded as a mini blockchain solely dedicated to enhancing fault-tolerance, security and decentralization for ETH stakers. As such, there is an obvious need to align interests between stakers (validators) and operators (service providers) and the entire Ethereum ecosystem.

The SSV token serves the function of coordinating between the different stakeholders participating in Ethereum’s layer 0. The token is designed to provide full transparency, cost control and flexibility for both stakers and operators. By introducing client and service provider diversity and using a dynamic fee structure,the network will be able to coordinate important efforts pertaining to keeping Ethereum healthy and robust.

The ‘Network Fee’ will allow the DAO to continually dedicate resources to further developing Ethererum’s layer 0 and will be used to distribute grants to build increased functionality and user-friendly access for the non-technical staker.

SSV-based staking is inevitable. Distributing KeyShares between nodes and creating ‘active-active’ redundancy for validators securing the Ethereum protocol is the future of the growing ETH staking ecosystem. Layer 1 (Ethereum) is powered and secured by layer 0. Layer 0 needs to be as decentralized and distributed as possible so the Ethereum ecosystem can serve as the cornerstone of decentralized financial (DeFi) and other amazing blockchain applications for the next 100 years.

All of this will be achieved by leveraging SSV to carry the Ethereum ecosystem into the transition to PoS and the ‘future of staking’.