LEGO Q4 2023 - Report
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LEGO Q4 2023 - Report

As the winter season commences, let’s take the opportunity to look back the achievements of LEGO throughout Q4 2023.

This quarter was marked by a strong focus on grants for Security and Decentralization. Furthermore, funding was allocated to Analytical Tools and a variety of other innovative projects, culminating in a significant total grant allocation of $296.7K for Q4 2023.

LEGO committee hopes that as you explore this report, you'll discover numerous valuable insights, illustrating the progress and the lively energy present within the LEGO ecosystem during the previous quarter. We hope you enjoy reading it!

Issued grants structure

To ensure maximum transparency, the LEGO committee has produced a regular report highlighting the accomplishments of the fourth quarter of 2023. You can always check financial transactions database for a complete history of disbursed grants.

During this period, grants issued in the Lido on ETH protocol security category took the lead, amounting to a total of $100K. Subsequently, funds were allocated to Decentralization support ($70K), Security assessments ($50K), Decentralized governance ($19K), Protocol development ($15K), Bug bounties ($11.6K), Analytical tools ($11.3K) and various other nice grants.

Overall, the disbursed grants for Q4 2023 amounted to $296.7K.

Please refer to the following radar chart for a visual representation of grants by categories:

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On the next chart you may find grant amounts by initiators.

Some other grants for this report purpose were reallocated from LEGO multisig to persons, who lead it mostly (D.U.C.K., Research for an Operator Scoring System and Safe on Holesky deployment grant → Izzy, Vyper security grant and LDO voting delegation research → kadmil).

After this adjustment the most productive grantor is… 🥁 kadmil! with $83.7K 🥇, congratulations! Followed by Izzy🥈 with $68.9K and Vshvsh🥉 with $6.7K.

1. Lido on Ethereum - Protocol Security

This category is represented by two major grants that saw a light in Q4 2023:

Succinct team created a proposal asking for $50K to develop an MVP on testnet that can demonstrate how the ZK oracle can augment the security of the existing oracle. At the moment of application they had a working POC, which was able to calculate following fields of Lido accounting Oracle:

  • clBalanceGwei: cumulative balance of all Lido validators on the consensus layer
  • numValidators: the number of Lido-participating validators on consensus layer that ever appeared (deposited + activated)
  • numExitedValidators: the number of Lido-participating exited validators on the consensus layer that ever appeared

LEGO committee has already funded two similar proposals to explore the feasibility of partially replacing the oracle with more trustless methods:

Although being all ZK based these implementations are different and may vary significantly in performance and cost-efficiency, so LEGO committee decided to support this development in search of the top potential solution.

Another grant was $50K disbursed to support Vyper programming language security, which is widely used in different integrations & ops contracts of Lido Protocol code base.

2. Decentralization

Following grants constitute this category:

  • D.U.C.K. initiative ($38.8K)
  • DVStakers Grant ($25K)
  • Neutrality watch support costs ($6,680)

2.a. D.U.C.K.

The D.U.C.K. (Distributed Utilization of Configurations and Knowledge) initiative aims to enhance the operations and reduce risks for Lido node operators by providing open-source resources. These resources include a Risk Framework, Mitigations & Controls Library, and a Communications Toolkit, tailored to the unique setups and operations of different node operators. The initiative focuses on community engagement, encouraging contributions and self-regulation in using these resources. This effort seeks to empower node operators with knowledge and tools for effective risk management, control measures, and operational best practices, thereby strengthening the overall staking landscape.

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The detailed Alpha Release work breakdown for the different workstreams is as follows:

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The total funding request is $77,600, payable in DAI, for the Alpha Release. The proposed payment structure involves an initial 50% ($38,800) payment to commence the work, followed by the remaining 50% ($38,800) upon final delivery approval.

At the end of the project, the Lido DAO NOM workstream will determine if all listed deliverables have been achieved in quantity and quality and, if that is the case, proceed with the payment.

After completion of the Alpha Release, the delivery team will evaluate necessary efforts for completion of the Beta and Public Release and intents to request appropriate funding in a new proposal.

2.b. DVStakers

The DVStakers grant proposal is focused on advancing educational initiatives around Distributed Validator Technology (DVT). It involves creating educational content and technical tutorials for setting up DVT nodes, running Ethereum validators in underrepresented regions like central Africa, and testing various hardware solutions. The initiative aims to provide neutral, unbiased education on DVT, making solo staking more accessible and contributing to the broader Ethereum ecosystem. The grant seeks to support these activities, emphasizing the importance of decentralized validation technologies for protocols like Lido.

Key accomplishments for the initiative are:

  1. Created and published educational content on Distributed Validator Technology (Twitter and YouTube).
  2. Established technical tutorials for setting up DVT nodes (https://dvstakers.com/).
  3. Focused on expanding Ethereum validator operations in underrepresented regions, specifically central Africa.
  4. Contributed to broader knowledge and accessibility of solo staking within the Ethereum ecosystem.

And many more please check the full text of the proposal on our research forum.

2.c. Neutrality Watch

Neutrality watch the winners of the first prize in RFP for ETH censorability monitor were granted with $6.7K to compensate maintenance of their Ethereum censorability meter - eth.neutralitywatch.com till May 2024.

3. Security Assessments

LEGO supported economic security audit led by Ethena Labs, in collaboration with Chaos Labs, targeting an assessment of USDe’s economic robustness covering the part of expense ($50K).

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This audit aims to cover following topics:

  • LST Redemption Risk: A detailed analysis of LST vs ETH basis price risks, encompassing factor analysis of stETH and other liquid staking token redemptions and historic on-chain patterns. This will include an updated analysis to capture the impact of Shapella and the resultant effect this would have on potential price deviations in stETH and other LSTs vs the price of ETH.
  • Liquidity Risks for ETH perpetual: Ethena Labs is going to gauge the market liquidity for short ETH perpetual contracts to support a stETH-backed synthetic dollar, simulating diverse market scenarios.
  • Liquidity Risks for USDe: Ethena Labs aims to understand stETH and USDe’s market liquidity nuances on-chain and off-chain to understand minimum liquidity requirements, emphasizing on-chain AMMs and resting liquidity on centralized orderbooks.

LEGO committee believes that supporting Ethena Labs' economic security audit benefits the Lido protocol by enhancing the understanding and credibility of stETH as a collateral option in DeFi protocols and centralized exchanges. The audit's focus on the economic robustness of synthetic dollar protocols like USDe helps assess the liquidity and market dynamics of stETH even more, which can lead to increased trust and utilization of stETH. Link to the proposal.

4. Research

Here two grants are worth mentioning (other researches were included into different categories):

  • ccitizen's Research for an Operator Scoring System (2nd part) - $15K
  • UX research grant - $4.1K

4.a. Operator Scoring System

ccitizen completed the research on scoring system for Lido node operators, which are one of the key elements in ensuring Lido protocol operation. The main takeaways of this research are:

  • Limitations of On-Chain Data-Only Systems: Sole reliance on on-chain data for node operator (NO) scoring is insufficient, as it doesn't fully account for all necessary risk factors.
  • Importance of Off-Chain Risk Data: The research emphasizes the crucial role of off-chain risk data in creating an effective scoring system.
  • Risk-Based Scoring Framework: The proposed system should prioritize risk mitigation factors like minimizing penalties and slashing for long-term performance and stability.
  • Incorporating Both On-Chain and Off-Chain Data: A balanced approach using both on-chain performance data and critical off-chain risk data is recommended.
  • MEV Data Exploration: The potential of Maximal Extractable Value (MEV) data as a future metric is noted, despite current implementation challenges.
  • Data Source Reliability and Selection: Rated.network is suggested as a suitable source for on-chain data.
  • Community Engagement: Involving the Lido DAO community in discussions around client diversity, MEV strategies, and key management is crucial for aligning the scoring system with community values and risk tolerance.

ccitizen believes that by viewing a scoring system through the lens of risk, it will allow Lido to craft a healthy and resilient validator set, that should necessitate higher performance over infinite epochs. Please find the full research at our forum.

4.b. UX Research Grant

molefrog made an interesting research about Lido staking widget, identifying different pain points and ideas for improvement on the “customer journey map” of various stakers. Please check it out yourself and share your thoughts about it in our discord.

5. Decentralized Governance

Following initiative are grouped into this category:

  • Research on adding delegation to LDO voting power and supporting the Lido DAO on Tally ($10K)
  • Snapshot spam check grant ($6K)
  • Web3 Deliberative Governance research - Decision Legos ($1K)
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5.a. LDO Voting Power Delegation Research

Reaching quorum for on-chain votes in the Lido DAO on Aragon can be challenging due to the lack of a delegation mechanism. The Tally x Lido DAO Research Grant proposes to address this by exploring four approaches to implement delegation for LDO voting power on Tally's platform:

  1. Fully support delegation built on top of the existing Lido DAO Aragon governance system on Tally
  2. Build smart contract interface that makes the LDO token compatible to Tally’s interface
  3. Build a proxy contract to make the LDO token look like an ERC20Votes token, then add a Governor as a module to the existing Aragon contracts
  4. Migrate the whole Lido DAO to a Governor that works natively with Tally.

Tally has deep expertise integrating on-chain governance:

  • They work closely with Open Zeppelin on the Governor standard and closely with the Scopelift team on the Flexible Voting module.
  • They work with the Uniswap DAO as part of the Uniswap Deployments Accountability Committee.
  • Tally is leading the way in the world of crosschain governance with their recent deep dive into crosschain governance designs for the Optimism Collective.

LEGO committee hopes that this research will be fruitful to decide on the delegation instrument which in turn should improve participation in votes making governance process more decentralized, inclusive and effective.

Please take a look at the proposal text at our forum.

5.b. Snapshot Spam Check

In Lido DAO, Snapshot voting is another governance tool. Despite its delegation feature, it encounters challenges like spam and scam votes. These problematic votes, often created by malicious entities, aim to either disrupt the governance process by deteriorating the voting platform's user experience or trick users into clicking malicious links within proposal texts, potentially compromising their funds. Increasing the treshold of LDO required for proposal creation at Snapshot.org helped, but not for a long. So the Snapshot proposed to onboard Lido DAO into premium plan with extensive spam/scam monitoring instruments claiming to flag such proposals in 2 hours since publishing.

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These plan also implies other benefits like Expanded proposal content limit, Extended voting strategies, Dedicated Telegram support group and other features about which you can read in the proposal.

LEGO supported this initiative and funded this premium plan for 1 year.

5.c. Decision Legos

LEGO committee co-funded with $1K worth of ETH AVAntoineVergne’s research that focuses on publishing an article titled "Decision Lego," aimed at developing a framework for decentralized governance design and scaling. It analyzes lessons from the first pilot of Citizens' Assembly in Web3 and aligns with questions from article "Open Problems in DAOs." The article will use Arbitrum Governance and Uniswap as case studies, reflecting on their governance experiences. The project seeks to blend Deliberative Governance, Web3, and regenerative principles to innovate collective decision-making processes, addressing current challenges in DAO governance like low participation and poor quality discussions. Full proposal can be found here.

6. Other Notable Grants

  • Safe (ex. Gnosis Safe) deployment on Holesky by Protofire team ($15K)
  • Bug bounties ($11.6K)
  • Glassmarkets analytical tools maintenance ($11K)
  • Various minor nice things ($2.2K)

Prpoposal by Protofire team to deploy Safe on new Holesky testnet came really in handy for Lido protocol contributors to test various tooling. Without much hesitation LEGO council voted to support this inititative with $15K grant at the start and following $6K grants disbursed each quarter after the status check.

Various bug bounties were paid during Q4 2023, mostly small ones, one classified as medium tier with single-use griefing potential, mitigated on UI level.

First quarterly grant of 5K LDO (approx. $11K at the moment of tranche) was made to Glassmarkets for dashboard to monitor stETH liquidity at centralized exchages proposal, used by Liquidity Observation Lab committee.

Various nice small things:

LEGO Q4 2023 Results

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Overall budget used during Q4 2023 was $296,723 using daily average prices of LDO where appropriate, which constitutes 59% of total $500K allocated per quarter.

One of the takeaways from previous quarter report was that the budget split 40% / 60% of LDO and DAI seems to be not relevant anymore, thus the Council decided to adjust it to be 20% / 80% LDO / DAI. As we can see grants by tokens split for 12 months of 2023 was 90.6% stables and only 8.7% LDO.

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Community Lifeguards Initiative

The Lido Community Lifeguards Initiative (CLI) is live and Eridian was nominated as its lead by the LEGO committee. CLI has its own multisig for grants facilitation and first quarterly tranche was made to it from the LEGO MS on the 6th of October 2023. Two new community lifeguards were proposed by Eridian and approved by LEGO - enti and Stakesaurus 👏 Following transfers were made from CLI’s safe:

For more details about CLI achievements please read their Q3 2023 and Q4 2023 reports.

Stay tuned, stake safe!