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.
© 2024 Cryptopress. For informational purposes only, not offered as advice of any kind.
