As the liquid staking popularity grows, Lido has become one of the most used DeFi protocols in the Ethereum Ecosystem.
Currently, the total staked amount on the platform has surpassed the $29 Billion mark, with rewards of over $1.5 Billion being distributed to more than 400,000 stakers.
The protocol was launched in 2021, and it has developed itself into a liquid staking protocol with the introduction of the stETH token.
With sthETH, users can lock their ETH and get stETH in return, essentially loving their ETH without actually locking it.
The stETH can be used just like regular ETH, which is why users are still liquid even though they are locking their ETH.
This is a huge selling point for Lido, as its popularity has been growing, especially since the fourth quarter of 2024.
However, many overlooked that it has its own DAO which governs its whole ecosystem, making it a truly decentralized project. In this article, we will be talking about what Lido is and how its DAO operates.
What is Lido DAO?
Lido is a non-custodial staking service with high liquidity. This protocol provides liquidity for staked assets through the issuance of derivative tokens.
For Ethereum on Lido, these tokens are called stETH. They enable users to earn staking rewards while holding a token that can be utilized across the DeFi landscape also known as a liquid staking token.
When a user clicks “stake now” on the Lido interface, their tokens are sent to the Lido protocol’s staking contract. This contract pools together funds from all users and then distributes them to node operators, currently numbering nine.
These node operators are entities responsible for managing and maintaining validators, meaning they are the ones doing the staking. They are chosen based on the decision of the DAO (Decentralized Autonomous Organization).
There are several key points to note about this system. Firstly, because user funds are pooled together, any penalties for slashing result in losses for all depositors.
Secondly, node operators do not hold access to user funds; instead, they possess a public validation key that allows them to validate transactions with other users’ staked funds. This is what makes Lido non-custodial.
In addition to distributing tokens to node operators, the staking contract is also responsible for minting and burning stETH (the Lido staking derivative we mentioned earlier).
stETH represents the ownership of the underlying ETH that we stake along with all its future earnings. Notably, stETH is minted at a 1:1 ratio to the user’s deposit amount.
Currently, 90% of staking rewards are given to depositors, while the DAO takes a 10% fee. Presently, this 10% fee is allocated in a 50/50 split between node operators and slashing insurance.
Lido currently operates on several Ethereum Ecosystem of Blockchains, which includes Polygon and other layer-two blockchains.
How Does Its DAO Operates?
Its DAO currently operates on the Ethereum Blockchain efficiently, thanks to the updates of the integrations between Ethereum and its layer two blockchains.
In the Lido DAO platform, four main sections can be used by its DAO members to track the DAO’s activity and participate in it.
On-chain Voting
The first one is the on-chain voting feature, which can be used by the holders of LDO to cast their votes on new proposals.
In that section, there will be information about active proposals that can be voted on, since there are so many to choose from all at once, unlike newer generations of DAO that only publish one DAO Proposal at a time.
Easy Track Voting
The second one is Easy Track Voting, which is a new feature that has not been implemented in many DAOs before.
This feature lets authorised core members of the DAO start a voting period for a specific proposal which has an urgency level above others.
The proposal needs to be approved or declined faster than most since it is typically a more important proposal responding to an unexpected event in the ecosystem.
Some examples are votes to change the confirmation process of the DAO after being hacked or after having some faulty mechanisms because of bad actors.
The proposal that is published here only has a threshold of 0.5% of the total token supply, which means it only needs the participation of half of the token holders of LDO.
72 Hours is the expiry date for the proposal published there, different from others that can have an expiry date of several weeks to several months.
There is also another type of feature on here which is the emergency track, where the proposal is more urgent and needs to be decided typically in less than 24 Hours.
Research Forum
The third one is the research forum where the members of the DAO, including all LDO holders, can discuss a certain proposal that is going to be uploaded or has been uploaded on the On-chain voting feature.
This section of the platform is built to create better communication and active contribution from the community since everyone can submit and discuss their idea there.
Snapshot Page
The fourth one is the snapshot page, which is built to show proposals that are still active and the ones that have been voted on.
In this section, members can see what proposals have been agreed on and what has been declined.
If a proposal has been declined then it will just be sitting idly there, while if the proposal is approved, then there will be updates on when it will be implemented, typically continuing on the research forum page.
This section is great for active members that want to track the development of the DAO, to see how many updates it has gone through and how many proposals have been submitted.
Lido DAO’s Infrastructure
Regarding the Lido DAO itself, it still operates as a regular DAO and has not been upgraded into a more advanced innovative DAO like newer generations of DAO.
It still operates in a single-branch matter, different from newer ones that have a multi-branch infrastructure.
The Lido DAO operates to govern the overall ecosystem of Lido, including its approvals of development proposals as well as funding proposals for other projects and innovations in the Lido Ecosystem.
The DAO itself is run by the holders of LDO, the governance token of the Lido DAO project, which is only used as a governance token, since the platform uses ETH and other blockchain coins as their gas fee, depending on where the user is using Lido.
No different sub-DAOs are running the DAO itself, which is why the DAO is pretty basic compared to other ones in the space right now.
LDO Token Economics
According to Coingecko, most of the tokens have already been circulating in the market, as the token itself was launched in January 2021.
Since then, the token has been transacted several times, reaching a daily transaction volume of more than $55 Million, with a market capitalization of $1.8 Billion.
The total supply of the token itself currently stands at around 1 Billion, where around 109 Million is still being locked due to the vesting period of the token.
This is why it can be said that most of the tokens have already been circulating in the market since more than 80% are already unlocked.
Even though the original token economics was mostly skewed towards the core team and early investors, the majority of the tokens are currently being held by the public, which means that the DAO is run by the community and not the core team.
This is because the LDO Token is the governance token of the Lido DAO, where every decision is voted on by using the LDO Token.
One LDO equals one vote, and since most of these tokens are held by the public, it can be said that the DAO is run by the public.
There are currently no whales aside from exchanges and liquidity pools, that hold more than 0.6% of the overall supply, which means that LDO is distributed pretty well among its community.
Conclusion
Looking at Lido DAO, there is no doubt that the project will be one of the most talked about in the DeFi sector, especially in the predicted bull market of 2025.
This is why there is a potential for the token to go back up again, essentially creating a new all-time high and profits for its holders.
However, its DAO might be overlooked as the focus is mainly on the liquid staking mechanism that attracts new users to it.
If the team decides to improve its DAO, then there is no question that LDO will be one of the most dominant tokens in the DeFi Category.
