• Home
  • News
  • Lido proposes ‘dual-governance’ to prevent Ethereum centralization

Lido proposes ‘dual-governance’ to prevent Ethereum centralization

Project members are concerned about “cartelization” and have lobbied for changes to the protocol’s governance.
| CryptoPress
Lido proposes 'dual-governance' to prevent Ethereum centralization

Lido project members are concerned about “cartelization” and have lobbied for changes to the protocol’s governance, which would prevent validators from gaining undue authority and give holders of Lido’s staked ETH token (stETH) veto power over protocol changes. Lido owns 32% of Ethereum’s Beacon chain ETH.

Ethereum’s security will be dependent on users staking their Ether to the network, allowing them to run block-producing nodes known as validators while receiving staking rewards.

Liquidity Problems

Lido and related protocols, such as Rocket Pool, allow users to stake ETH and gain access to locked liquidity through the use of 1:1 derivative tokens. These tokens, like stETH and rETH, have the potential to generate yield in DeFi.

stETH has mostly traded at the same price as ETH. Last month, stETH “de-pegged” from ETH and traded at 93 cents on the dollar on Monday. Although each stETH token can be redeemed for one ETH token following the merger, forced selling from large stETH holders and a lack of liquidity on Curve pushed its price down on secondary markets, creating an opportunity for ETH bulls but also raising concerns about collateral damage in the broader DeFi economy.

Governance

The system is governed by Lido DAO, and in the worst-case scenario, a small number of rogue actors might seize the DAO, putting stETH holders and the Ethereum network at risk.

At a Twitter Spaces event last week, Hasu, a strategic consultant at Lido, presented the prospective strategy. “Because Lido chooses which node operators get the share, they may put some pressure on operators to do what Lido wants,” Hasu said.

Because Lido chooses which node operators get the share, they may put some pressure on operators to do what Lido wants.

Strategic Consultant at Lido

According to Hasu, the worst-case scenario would be to stop manufacturing Ethereum blocks, restructure the chain, delete faulty MEV, or censor users.

A Lido core developer, Sam Kozin, co-wrote “dual governance” to allow stETH holders to reject LDO-approved governance proposals.

Kozin said on Twitter that dual governance should only be used for decisions that may harm stakeholders.

If stakeholders are dissatisfied with Lido governance, they may withdraw their ETH and migrate to another liquid staking system, according to Kozin. Because withdrawals will not be possible until, after The Merge, the dual governance architecture will safeguard stakeholders until then.

Image: KoeppiK, CC BY-SA 4.0 https://creativecommons.org/licenses/by-sa/4.0, via Wikimedia Commons.

Related articles


More Articles

CoinFLEX suspends withdrawals and wants to pay by issuing $47 million in tokens

A trader found a vulnerability and left more than $50 million in debt when he abruptly left the platform last week. The company has had trouble pa…
Avalanche Bridge adds native support for Bitcoin

Avalanche Bridge adds native support for Bitcoin; AVAX goes up 7.4%

The Avalanche bridge has been updated to include native support for Bitcoin (BTC), with the cross-chain smart contracts platform seeing a 7.4% inc…
sam bankman-fried

Sam Bankman-Fried saves BlockFi and Voyager

Sam Bankman-Fried, the co-founder of crypto exchange FTX and quantitative trading firm Alameda, has emerged as something of a savior for the crypt…
(Visited 7 times, 7 visits today)
© Cryptopress. All rights reserved.