SSV Tokenomics

Tokenomics

Introduction

SSV allows stakers to select multiple staking providers by securely splitting and distributing their validator key between multiple non-trusting nodes run by operators. Splitting the validator key into KeyShares and distributing them to multiple nodes achieves active-active redundancy for validator reliability. Security is also enhanced, as the key can be generated and stored securely offline while the KeyShares that represent it operate the validator.

The ETH staking space is growing, and a potential staker has a variety of options for running a validator to earn rewards for securing the Ethereum blockchain. Because SSV offers stakers a much higher level of security and reliability, they pay a fee in SSV tokens ($SSV) to the operators they select to manage their validators, and a network fee to the DAO.

Read more about DVT / SSV technology

ssv.network Participants

  • Operators – Operate and maintain SSV nodes running validators on behalf of stakers to generate ETH rewards for them. In return for their services, operators receive SSV tokens from stakers.
  • Stakers – Put 32 ETH at stake on the Beacon Chain and own a validator that secures the network by attesting to and proposing new blocks. Stakers pay fees to operators in SSV tokens and receive ETH rewards for signing data transactions.
  • Liquidators – Actors that work behind the scenes to keep the network solvent by signaling stakers when they have insufficient balances to pay their operators. Liquidators receive compensation in SSV tokens for performing a successful liquidation.

SSV Token Overview

SSV token has two main uses:

  1. ssv.network is open-source and decentralized, with governance falling on the community, or DAO. Only SSV token holders can submit proposals and vote on them, allowing them to shape the DAO.

  2. SSV token is used as the network’s payment layer to create economic incentives for operators. Each operator can determine their fee and compete with other operators for stakers. Stakers choose multiple operators to manage their validators and must keep a minimum $SSV balance to pay their operator fees.

*For reference, the ‘pay per node’ model is already working successfully in other networks, like The Graph and Chainlink.

SSV Token Utility

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

The SSV token has utility as the payment method of the ssv.network.
SSV Token Utility
  • Operators receive SSV tokens from stakers for managing their validators and generating ETH rewards on their behalf.
  • Stakers pay SSV tokens to operators and receive ETH rewards directly from the blockchain.

Operators never hold or have access to a staker’s ETH deposit principle or earned rewards. The operator’s role is to operate and maintain the validators generating the ETH rewards. They have nothing to do with distributing those rewards to stakers.

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

SSV maximizes value for 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 have complete control over their cost structure when choosing operators on the network. Stakers can also redistribute their KeyShares to different operators to reduce their costs.
  • Inflows > Outflows – Stakers must hold a minimum amount of $SSV as collateral to avoid potential liquidation. This covers their operator costs for a set period and helps keep the network solvent by preventing a situation where operators are not paid for performing their duties. It also helps mitigate selling pressure from operators realizing their $SSV gains.

Validators, Costs & Operator Selection

Stakers will distribute their validator KeyShares to four operator nodes on ssv.network. When choosing specific operators, stakers should consider the following: performance rating, verified status, client diversity, network effect, and price.

Each operator determines their specific fee in SSV tokens as their yearly operator fee. For example, if all four operators price their service at 1 $SSV per year, the total annual cost for the staker will be 4 $SSV. Therefore, the staker will need to deposit 4 SSV tokens into their wallet to stake with their chosen operators for an entire year. Stakers can decide to deposit less than a whole year’s worth of $SSV, providing the amount is more than their ‘liquidation collateral.’

The SSV token has utility as the payment method of the ssv.network.
Stakers use the operator selection screen to select operators based on their ratings and pricing.

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 regarding fees.

If the staker wishes to discontinue their service, they can opt out at any time and retrieve the unused $SSV balance from their wallet. When the staker removes their validator from the network, the operator cluster will stop managing it. Now, the staker can migrate to a different service or DIY without fear of penalties or slashing.

Network Fee

In addition to operator fees, stakers also pay a network fee to use the network and SSV protocol. The network fee is a fixed cost per validator determined by the DAO that is added to the yearly operator costs. The network fee flows directly into the DAO treasury and funds further ecosystem development and activities that the DAO has approved.

Like operator fees, the network fee is deducted from a staker’s $SSV balance over time. However, the network fee is a constant factor in a staker’s cost, regardless of the operator cluster they choose.

The Network Fee provides a flow of income for the DAO.
How the Network Fee works

Factors that determine the Network Fee:

  1. # of validators/ETH staked – The amount of ETH staked on ssv.network determines the network’s ability to generate fees. As the amount of ETH staked increases, the network fees generated also increase, which is good for the network’s overall health.
  2. ETH staking APY – Ethereum’s APY will ultimately determine the network’s ability to raise or lower network fees. As APY increases, so can 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 token per year, we can assume that the network fee will be less than 1 $SSV per year. 
  4. SSV token price – As the price of $SSV increases, the network fee will likely decrease.

Operators – Rewards & Fee Distribution

ssv.network is unique in the transparency and free-market competition it introduces to the ETH staking space. Operators compete with each other for stakers on many levels, including price. Ultimately, free-market competition will empower stakers to lower their costs and optimize their staking returns.

Operators acting in a cluster of nodes will enjoy the benefits of fault tolerance and ultra-low slashing risks. 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 and other costs.

It’s important to note that operators in a cluster act together to generate ETH rewards for stakers. One of the benefits of SSV is that if one node is offline when a call from the Beacon Chain goes out to a validator, the rest of the nodes in the cluster will execute the duty successfully. When this happens, all the nodes in the cluster receive their $SSV reward for the given block. Therefore, the fault tolerance provided by SSV is just as valuable to operators as it is to stakers.

Operator Fees

Operators can change their fees anytime. However, there are restrictions on the protocol level that limit the operator’s ability to raise prices rapidly. This protects stakers from sudden spikes in their usage costs.

Operators can change their fees anytime using this process.
Operator fee change process

Operator fee change guidelines:

  1. Change request – An operator broadcasts their new fee to the network.
  2. Waiting period – After the new fee is broadcast, the operator must wait  a predetermined number of days before executing it, allowing stakers time to react. Stakers can choose to add SSV tokens to cover the additional costs or change operators during this time.
  3. Execution period – After the waiting period ends, the operator will have a predetermined number of days to execute the change. If the operator does not execute the change before the expiration, the fee will remain the same. This prevents a situation where an operator requests a fee change and waits until long after the waiting period is over to implement it.

Operators can lower their prices to whatever degree and as often as they wish but are limited in their ability to raise their fees. A DAO vote will ultimately determine the exact % limitation per fee change request. For example, if set at 5%, an operator will not be able to raise their fee by more than 5% at each request.

Factors that determine operator fees:

  • # of KeyShares – The more KeyShares an operator manages, the more SSV they can generate. 
  • Pricing – The more competitive an operator is with their pricing, the more attractive they will be to stakers.
  • Performance – High operator performance over time will likely be more attractive to stakers. 
  • Dual role – Many network operators are also stakers, 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 also divert a portion of their earnings back into the DAO treasury to pay network fees for their validators.
  • SSV token price – The higher the price of $SSV, the lower the average operator fee is likely to be. 
  • Diversity – Stakers will likely prefer selecting a diversified group of operator nodes for better fault tolerance and to decentralize their staking risk. For example, if all the nodes in a cluster are running a Prysm validator client, a node that runs a different client, like Lighthouse, might be more appealing to stakers.

Liquidation and Liquidation Collateral

To ensure that operators are always compensated for their efforts and keep the network solvent, each staker must deposit a sufficient balance of SSV tokens into their account for each validator they run on the network. This is known as liquidation collateral.

The collateral amount is derived from the operator fees and maintains a sufficient balance to cover operator costs for a set number of blocks. This is the “liquidation threshold period“, a period of time (block height) configured and decided on by the DAO. Because stakers pay operators continuously, if their SSV token balance drops below the threshold balance, they are at risk of liquidation. When a validator is liquidated, it will cease to perform network duties.

Liquidation collateral is the incentive for liquidators to constantly monitor the network and liquidate accounts in default, triggering the validator’s operator cluster to terminate the service and stop managing the validators.

Effects of SSV Token Price Fluctuation

Operators have flexibility to change their fee structure within certain guidelines. When the price of $SSV appreciates, it makes sense that operators will react by lowering their fees. Of course, the opposite will be true when $SSV depreciates. Operators that are not competitive and reactive to market fluctuations risk losing stakers to more cost-effective operators.

Conclusion

DVT-based staking is a network-wide effort to decentralize Ethereum’s security layer or ‘Layer 0’. ssv.network can be regarded as a mini-blockchain dedicated to enhancing fault tolerance, security, and decentralization for ETH stakers. As such, there is an obvious need to align interests between stakers, operators, and the entire Ethereum ecosystem.

SSV token coordinates the different stakeholders participating in Ethereum’s Layer 0. The token provides full transparency, cost control, and flexibility for 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 to keep Ethereum healthy and robust.

The Network Fee allows the DAO to continually dedicate resources to further develop Ethererum’s Layer 0. Accumulated fees are used to fund grants for projects that build increased functionality and user-friendly access for the non-technical staker.

SSV-based staking is inevitable. Distributing KeyShares between nodes and creating redundancy and fault tolerance for validators securing the Ethereum protocol is the future of ETH staking. Layer 1 (Ethereum) is powered and secured by Layer 0. It needs to be as decentralized as possible to allow Ethereum to be the cornerstone of decentralized financial (DeFi) and other decentralized applications (dapps) for the next 100 years.