[continued from above]
Protocol Transition and Governance Implications
The introduction of ETH-denominated payments and native effective balance accounting represents a structural upgrade to the SSV Network. Beyond the core protocol design, these changes require deliberate updates to incentives, parameters, and legacy governance decisions.
Incentivized Mainnet Transition
With the introduction of ETH payments, network fees for ETH-denominated clusters are no longer compatible with the Incentivized Mainnet fee deduction mechanism (Incentivized Mainnet rewards are distributed in SSV, while network fees for these clusters are paid in ETH). As a result, network fees cannot be deducted from Incentivized Mainnet rewards for validators operating as part of ETH-denominated clusters.
At the same time, ETH-denominated clusters operate under the new effective balance accounting model, where network fees are calculated and collected natively by the protocol. Because these fees are already enforced on-chain, applying additional off-chain deductions via the Incentivized Mainnet script becomes obsolete for ETH-denominated clusters.
To reflect this distinction, the Incentivized Mainnet script will be updated to differentiate between legacy SSV-based clusters and ETH-denominated clusters:
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ETH-denominated clusters - Network fee deductions are removed.
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SSV-based clusters - Network fees continue to be deducted from Incentivized Mainnet rewards under the existing model.
This update ensures that Incentivized Mainnet behavior remains aligned with the accounting and fee mechanisms applicable to each cluster type, while correctly supporting ETH-denominated clusters under the upgraded protocol model.
Liquidation Collateral Parameter Evaluation
The liquidation collateral and liquidation threshold parameters currently in effect were derived using a DAO-approved calculation framework, most recently formalized in DIP-44. With the introduction of ETH payments, the protocol introduces dedicated liquidation parameters for ETH-denominated clusters. As part of defining these new parameters, it is appropriate to revisit the existing calculation framework to ensure that its underlying assumptions remain valid under current network conditions.
Revisiting the Calculation Framework
The existing framework relies on a 1-year historical lookback window for gas price data. This choice was appropriate at the time of adoption, when gas prices were higher and more volatile.
However, recent Ethereum network conditions differ materially from those reflected in earlier datasets. In particular:
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Average gas prices have declined significantly
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Gas price volatility has stabilized
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Sustained Layer 2 adoption has structurally reduced congestion on Ethereum mainnet
As a result, a full 1-year lookback increasingly overweights historical periods that are no longer representative of current or expected near-term conditions.
To illustrate this shift, the following charts compare historical gas price behavior under different lookback windows:
Ethereum gas prices over the last year (reference - ycharts.com)
Ethereum gas prices over the last 6 months (reference - ycharts.com)
Under a 1-year lookback window:
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Average gas price: ~3.51 GWEI
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Gas price standard deviation: ~4.63 GWEI
Under a 6-month lookback window:
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Average gas price: ~1.86 GWEI
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Gas price standard deviation: ~1.86 GWEI
This represents a substantial reduction in both average gas costs and volatility. Continuing to rely on a 1-year window would therefore embed outdated assumptions into the liquidation model, resulting in parameters that are more conservative than current network conditions justify.
For this reason, it is proposed to update the calculation framework to use a rolling 6-month lookback window. By grounding liquidation cost assumptions in more recent gas price data, the framework reflects both a lower average gas cost and reduced volatility. This, in turn, lowers the estimated worst-case cost of executing a liquidation and reduces the amount of collateral required to safely incentivize liquidators, improving capital efficiency without weakening safety guarantees.
This change applies to the framework itself, and therefore affects all parameter evaluations derived from it going forward.
Impact on Existing SSV-Based Parameters
Applying the updated 6-month lookback window to the existing framework results in revised parameter values for SSV-denominated clusters:
| Parameter | Current Value | Proposed Value | Deviance |
|---|---|---|---|
| minimumLiquidationCollateralSSV | 1.53 SSV | 0.883 SSV | -42.52% (>15%) |
| minimumBlocksBeforeLiquidationSSV | 14 days | 100380 (14 days) | 0% (<15%) |
These updated values are a direct consequence of revised inputs rather than a change in liquidation logic. They are presented to maintain methodological consistency with prior DAO decisions.
The DAO may choose to adopt these updated SSV-denominated values as part of this proposal or defer their application to a separate governance decision.
ETH-Denominated Liquidation Parameters
In parallel to the existing SSV-denominated parameters, ETH-denominated clusters require a dedicated set of liquidation parameters derived from the same framework but adjusted to reflect their materially different risk profile.
Reduced Risk from Removing SSV from the Calculation Framework
Under the legacy SSV-based model, liquidation parameters were required to account for a cross-asset mismatch: liquidation execution costs are paid in ETH, while liquidation rewards and fee accrual are denominated in SSV. This required incorporating assumptions around SSV/ETH price ratios and their deviations, increasing uncertainty and necessitating more conservative parameter values.
By removing SSV from the calculation framework, ETH-denominated clusters eliminate this cross-asset exposure entirely. Network fees, collateral, and liquidation execution are all denominated in ETH, resulting in a more predictable and tightly bounded liquidation model.
Revised Liquidation Functions for ETH-Denominated Clusters
With SSV-denominated components removed from the calculation framework, the existing liquidation functions can be simplified and recalibrated for ETH-denominated accounting.
The calculation framework uses the following formulas for SSV-denominated clusters:
- Minimum Liquidation Collateral
- Liquidation Threshold
New formulas for ETH-denominated clusters:
- Minimum Liquidation Collateral
- Liquidation Threshold
These ETH-denominated functions maintain the same safety objectives as the legacy framework, while allowing parameters to reflect the reduced risk profile enabled by ETH-denominated accounting.
Proposed Initial Parameters for ETH-Denominated Clusters
Applying the ETH-specific liquidation functions yields the following proposed initial liquidation parameters for ETH-denominated clusters:
| Parameter | Current Value | Proposed Value | Deviance |
|---|---|---|---|
| minimumLiquidationCollateral | - | 0.00094 ETH | 100% (>15%) |
| minimumBlocksBeforeLiquidation | - | 50190 (7 days) | 100% (>15%) |
These values are proposed as initial settings and remain fully governance-controlled. As with all liquidation-related parameters, the DAO retains the ability to adjust them as network conditions and assumptions evolve.
Network Fee Implications
Network Fee for ETH-Denominated Clusters
As part of the transition to ETH-denominated clusters, the protocol introduces a dedicated network fee denominated in ETH, applied to ETH-denominated clusters.
Under the legacy SSV-based model, the network fee calculation incorporated an ETH/SSV conversion factor, reflecting the fact that protocol fees were accrued in SSV while staking rewards and execution costs were denominated in ETH. With ETH-denominated clusters, this conversion is no longer required.
For ETH-denominated clusters, the network fee is calculated natively in ETH as:
This formulation removes SSV entirely from the network fee calculation and aligns fee accrual directly with ETH-denominated validator rewards.
Proposed Network Fee
Applying the ETH-denominated network fee formulation yields the following proposed initial network fee parameter for ETH-denominated clusters:
| Parameter | Current Value | Proposed Value | Deviance |
|---|---|---|---|
| ethNetworkFee | – | 0.000000003550929823 ETH (0.00928 ETH - annual) | 100% (>15%) |
Implications for the Legacy SSV Network Fee
Once all clusters have migrated from SSV-based accounting to ETH-denominated clusters, the protocol will no longer rely on SSV-denominated network fees or ETH/SSV conversion logic.
The existing governance mechanism for bounding the SSV network fee via a ratio-based maximum, as defined in DIP-49, was introduced to constrain the network fee under a model where fees were denominated in SSV and implicitly exposed to ETH price dynamics.
Under an ETH-denominated fee model, this constraint becomes irrelevant. With network fees calculated and collected directly in ETH, there is no longer an SSV/ETH ratio to bound, and governance of the protocol network fee is expressed solely through the ETH-denominated network fee parameter.
Future Consideration: Public-Good DVT Clusters (SSV-Based)
In future versions of the protocol, the SSV Network may explore supporting SSV-based clusters as a dedicated mode for public-good DVT use cases.
Under this model, public-good DVT clusters would operate without paying protocol-level network fees. In exchange, these clusters would not participate in incentive programs such as the Incentivized Mainnet (IM). This preserves economic neutrality while allowing certain DVT deployments to operate purely as public infrastructure.
This approach acknowledges that while SSV-based clusters are being deprecated for ongoing commercial operation, they may still serve a purpose as a constrained and clearly defined execution mode for non-commercial validator setups - such as research, experimentation, or ecosystem infrastructure - without distorting the protocol’s economic model.
This concept is not part of the current release and is presented as a potential future extension to support public-good DVT use cases in a principled and economically isolated manner.