DendrETH: A trustless oracle for liquid staking protocols
What is the work being proposed?
The DendrETH project has implemented a zero-knowledge circuit capable of proving successful state transitions based on the beacon chain light client sync protocol. The project is currently aiming to implement a zero-knowledge circuit capable of proving the Casper finality conditions by processing the attestation messages of the entire Ethereum validator set. This work has led us to explore efficient constructs for implementing recursive zero-knowledge circuits for BLS aggregation, validator set membership tracking, validator duties tracking and more.
We believe that these building blocks are well-suited for solving a pressing problem that all liquid staking protocols face: How can a smart contract keep track of the on-chain performance of the created validators without relying on a set of trusted oracles that inevitably introduce additional security risks and economic overhead to the protocol?
In particular, after the introduction of EIP-4788, all liquid staking protocols will benefit from the presence of security-audited zero-knowledge circuits proving the following proofs:
1. Proof of Total Locked Value
Given a merkle accumulator containing all public keys of the validators created by the liquid staking protocol, provide a proof for the sum of the balances of all validators at the last finalized epoch.
2. Proof of Total Rewards Potential
Given a merkle accumulator containing a set of validator public keys (this scales from a single validator to the entire set of validators created by the liquid staking protocol), provide a proof that indicates the maximum number of rewards that the set of validators were eligible for within the canonical finalized history. This takes into account the block proposal duties and the sync committee duties of the validators.
Since the maximum possible profit from a block cannot be determined without knowledge of all attestations that were broadcast in the network, we assume that the potential reward is equal to a running average of the last N blocks leading up to the slot of the proposal.
Similarly, since the maximum MEV profit from a block cannot be known, we can model it as a public input for the circuit which can be set by the liquid staking protocol (and potentially managed dynamically).
Please note that the circuit can verify the presence of a transaction within the block that distributes the MEV rewards to the liquid staking protocol, but unfortunately this doesn’t rule out the possibility that the proposer was paid some additional sum by the builder out-of-band. Some of these difficulties in the tracking of MEV rewards are likely to be resolved in the planned Proposer-Builder Seperation upgrade of Ethereum that will enshrine the MEV distribution within the base protocol.
3. Proof of Poor Validator Performance
Given a Proof 2 obtained for a particular validator as described above, provide a proof that the validator has earned less than a target percentage of the maximum rewards (e.g. 90%). Such a proof can be used to penalize or evict particular operators from the protocol. The circuit compares all recorded withdrawals of the validator to the total rewards potential to determine whether the validator is meeting the target performance.
Rationale
The development of the proposed zero-knowledge circuits is motivated by several key factors and considerations.
Firstly, the reliance on trusted oracles in liquid staking protocols poses a significant risk. These oracles have the power to influence token prices within the protocols, potentially favoring certain users and shifting profits disproportionately. This centralized control contradicts the fundamental principles of decentralization and trustlessness that underpin blockchain technology.
Secondly, the oracles in question control a substantial amount of funds within the protocol. To ensure their continued participation and prevent potential defection, it is essential to provide them with adequate compensation. Additionally, given the substantial power they possess, the oracles become prime targets for hackers. This necessitates significant investment in maintaining their security infrastructure, further contributing to the overhead associated with the existing liquid staking protocols.
In practice, the current costs associated with oracles in the already deployed liquid staking protocols have been subject to criticism, raising concerns regarding the economic efficiency and viability of the protocols. Therefore, it becomes crucial to explore alternative approaches that can address these concerns and potentially reduce costs while enhancing overall security and trustlessness.
The zero-knowledge circuits envisioned in this proposal can be developed as a public good - a reusable solution that can potentially replace the use of trusted oracles in all existing and future liquid staking protocols. When leveraged, this solution will eliminate the variable costs associated with trusted oracles in favor of the fixed cost of verifying zero-knowledge proofs on chain (expected to be less than 500K gas per update).
By introducing these trust-minimized oracle alternatives, the DendrETH team aims to enhance the security, decentralization, and economic efficiency of liquid staking protocols. The reduction in reliance on trusted oracles and the associated costs can lead to a more robust and sustainable ecosystem, fostering greater user confidence and participation.
Technical details
For futher technical details, please refer to the following document:
Is there any related work this builds off of?
A project stating similar goals have been explored in the LIDO ecosystem:
The DendrETH project expands on the scope and utility of the proposed solution, aiming to make it fully reusable across all liquid staking protocols.
Recent research by @knoshua explores the possibilities to use Fault proofs as an alternative trust minimizing mechanism for replacing the current Oracle requirements of the RocketPool protocol. We plan to leverage a lot of these findings when designing our zero-knowledge circuits
Will the results of this project be entirely open source (MIT, GPL, Apache, CC BY license or similar)? If not, which parts will not be, why, and under what license will they be published?
All components of the system will be fully open source (GPLv3). We will strive to provide comprehensive guides for operating instances of our proof generators and relay nodes, as well as easy-to-use packages for most operating systems (i.e. docker images).
Benefits - enter N/A where appropriate
How does this help people looking to stake ETH for rETH?
N/A
How does this help rETH holders?
By reducing the overhead and risk associated with oracles in the protocol, it should be possible to increase the effective ROI for all rETH holders. This solution also insulates rETH holders from potentially catastrophic rETH price reports from a compromised oDAO.
Combined with forced exits, Proof of Validator Performance can be used to eject node operators who are seriously underperforming. This will boost rETH returns and reduce Rocket Pool’s current effectiveness drag vs. other large staking platforms.
How does this help people looking to run a Rocket Pool node for the first time?
N/A
How does this help people already running a Rocket Pool node?
N/A
How does this help the Rocket Pool community?
By introducing these trust-minimized oracle alternatives, the DendrETH team aims to enhance the security, decentralization, and economic efficiency of liquid staking protocols. The reduction in reliance on trusted oracles and the associated costs can lead to a more robust and sustainable ecosystem, fostering greater user confidence and participation.
The introduction of DendrETH helps builders working on solutions with oracle requirements integrate with Rocket Pool, bolstering the trustlessness of the greater RP ecosystem.
How does this help RPL holders?
The benefits for rETH and RPL holders are similar.
What other non-RPL protocols, DAOs, projects, or individuals, would stand to benefit from this grant?
We aim to create a solution that will be applicable in all current and future liquid staking protocols, as well as RPL-adjacent projects such as NodeSet, which is building liquid staking infrastructure to power the scaling of Rocket Pool and would benefit from a trustless oracle for xrETH/xRPL price reporting, as well as operator performance monitoring.
Furthermore, certain components of our solution such as the generalized commitment mapper will enable the development of a wide range of projects that aim to take advantage of the functionality introduced in EIP-4788.
Finally, the work delivered under this grant will certainly enhance the quality of all components developed by the DendrETH team in the pursuit of wider goals such as implementing zero-knowledge proofs for the Casper finality conditions in order to create more secure cross-chain bridges and one-shot syncing solutions for highly convenient and secure Ethereum clients.
Will the resulting project be open source?
Yes, see above (“Will the results of this project be entirely open source?”).
Team
Who is doing the work?
The work will be carried out by the existing DendrETH team, consisting of (in alphabetical orer):
- Dimo Dimov
- Emil Ivanichkov
- Kristin Kirkov
- Petar Kirov
- Simeon Armenchev
- Stefan Nikolov
- Yordan Miladinov
- Zahary Karadjov
What is the background of the person(s) doing the work? What experience do they have with such projects in the past?
Zahary Karadjov is the current team lead of the Nimbus project. Petar Kirov is a former CTO of Jarvis Network. The rest of the team has accumulated a lot of relevant experience during their work on the DendrETH project so far.
What is the breakdown of the proposed work, in terms of milestones and/or deadlines?
The DendrETH team aims to deliver a production-ready version of the “Total Locked Value” proof before the upcoming Cancun-Deneb hard-fork, including the software for proof generation and on-chain proof publishing.
In Q1 and Q2 2024, we hope to deliver the remaining proofs for “Total Rewards Potential” and “Poor Validator Performance”.
How is the work being tested? Is testing included in the schedule?
Testing is performed on an ongoing basis. We plan to spend the final three months of development before our mainnet release in increased testing efforts, as well as conducting internal and external audits of our codebase.
How will the work be maintained after delivery?
We believe the components developed by the DendrETH team will be widely used in critical cross-blockchain communication infrastructure in the future, which will ensure their continued development and maintenance.
Payment and Verification
What is the acceptance criteria?
There is ready-to-use and well documented software for the creation and verification of the proofs proposed in this document.
What is the proposed payment schedule for the grant? How much USD $ and over what period of time is the applicant requesting?
We are seeking funding from a consortium of protocols, a number of whom are contributing, including Diva Staking, Lido and the Ethereum Foundation ($50k each). We would be thrilled for Rocket Pool to be a member and believe our project is highly aligned with the ethos of the RP protocol and community.
If the GMC would rather release payments on a milestone basis, we are open to that approach and would be happy to work with the GMC on a delivery/payment schedule.
How will the GMC verify that the work delivered matches the proposed cadence?
We will produce regular technical demos and proof-of-concept deployments of our work as soon as we reach each milestone.
What alternatives or options have been considered in order to save costs for the proposed project?
We believe we are already working in extremely cost-effective manner, seeking synergies between multiple project goals and optimizing our work for as wider adoption as possible (in order to reduce the burden on each individual community that benefits from it).
Conflict of Interest
Does the person or persons proposing the grant have any conflicts of interest to disclose? (Please disclose here if you are a member of the GMC or if any member of the GMC would benefit directly financially from the grant).
The Nimbus team, lead by Zahary Karadjov, is a current beneficiary of the oracle rewards issued by the RocketPool protocol. The Nimbus team fully supports the recently proposed ethical charter stating that all oDAO members should seek to minimize their role in the protocol and this proposal provides evidence that our position is sincere.
Will the recipient of the grant, or any protocol or project in which the recipient has a vested interest (other than Rocket Pool), benefit financially if the grant is successful?
No.