Problem is fixed
Many thanks to SteamVR devs who were very helpful and responsive during past 24 hours.
All you need to do is to update your SteamVR to the latest beta. Right click SteamVR in Steam library -> Properties -> Beta -> Select "SteamVR beta" in the dropdown box.
The fix is live in stable SteamVR update channel! Let your SteamVR install any pending updates and you're good to go. You might need to restart Steam to get latest updates.
After latest SteamVR update an important component stopped working in SteamVR. New SteamVR version is using undocumented closed code which broke VRidge.
We are surprised that they pushed the beta runtime into live channel without updating their documentation first even after multiple developers* reported the problem to Valve as compatbility breaking.
It's hard to fix a problem without proper documentation or at least an explanation what changed inside the black box. We'll continue to search for a quick workaround. We'll also try to reach out to SteamVR team through more channels than we already did.
It's middle of the night here and I don't have all the information yet. This post will be updated with more news as soon as we know more.
*
https://github.com/OSVR/OSVR-Vive/issues/21
https://github.com/ValveSoftware/openvr/issues/276
https://steamcommunity.com/app/358720/discussions/0/343786746012512454/
Past updates:
Update @T+30mins:
We received response. SteamVR beta update with a fix should be available this afternoon or tomorrow (Seattle time). Switch to SteamVR's beta channel to make sure update is installed as soon as it's available.
Update @T+60mins:
SteamVR beta update is deployed. We are investigating remaining compatibility problems.
Update @T+80mins:
The problem still occurs but the characteristics changed. We are trying to find out why the new version still has this issue.
Update @T+120mins:
Many thanks to Valve for quick updates. They are investigating update changes further.
Update @T+12 hrs:
We're eagerly awaiting Seattle office hours to hear back from Valve. In the meantime we're trying to develop an alternative capture method that doesn't rely on direct mode driver compatibility.
Update @T+18 hrs (Oct 5 - 10:00 AM PDT, 1:00 PM EDT, 19:00 CEST):
The problem has been escalated further by SteamVR devs. We are thinking about creating temporary SteamVR driver rewrite but we're still estimating the scope of work needed to do so. We updated our main site with a site-wide notification about this problem.
Update @T+20 hrs (Oct 5 - 12:00 PM PDT, 3:00 PM EDT, 21:00 CEST):
An update has been released to SteamVR's beta channel. After updating SteamVR the issue should be resolved. Both Riftcat beta and stable channels seem to work correctly. We're running some more tests to make sure everything else works fine.
Update @T+22 hrs (Oct 5 - 2:00 PM PDT, 5:00 PM EDT, 23:00 CEST):
The fix is live in stable SteamVR update channel! Let your SteamVR install any pending updates and you're good to go. You might need to restart Steam to get latest updates.