Lido Finance Proposes Dual Governance Model to Empower stETH Holders
Lido’s governance community is currently evaluating a groundbreaking proposal that could potentially shift the balance of power within the protocol. The proposal, known as Lido Improvement Proposal 28 (LIP-28), introduces a Dual Governance framework that aims to give staked Ethereum (stETH) holders a more prominent role in decision-making processes.
At present, only LDO token holders have the authority to vote on changes to the Lido protocol. This setup essentially grants them full control over crucial decisions that impact all participants in the ecosystem, including stETH holders. Despite the pivotal role that stETH holders play in the platform’s success, they currently lack a formal mechanism to voice their opinions or influence DAO proposals.
The key objective of LIP-28 is to provide stETH holders with a more active voice in protocol decisions, particularly in scenarios where proposals approved by LDO token holders are deemed contentious. This proposed governance model has been described by Hasu, the strategy lead at Flashbots, as the “most important Lido upgrade ever.”
Lido Finance stands as Ethereum’s leading liquid staking platform, commanding approximately 27% of the total ETH staking market share. The platform enables users to stake ETH with validators and receive stETH tokens in return. These stETH tokens can then be utilized in various decentralized finance (DeFi) applications, offering users enhanced flexibility and liquidity.
The Dual Governance model outlined in the proposal incorporates a timelock mechanism between DAO proposals and their implementation. This delay mechanism provides stETH holders with the opportunity to react if they anticipate negative repercussions from a particular decision. They can express their dissent by locking their stETH, wstETH, or withdrawal NFTs in a designated escrow contract.
Once the escrow deposits reach 1% of Lido’s total value locked (TVL) in Ethereum, a delay period is initiated. If the deposits escalate to 10% of TVL, the proposal enters a “rage quit” state, halting any further action until the locked tokens are converted back to ETH. This framework empowers stETH holders to have a meaningful say in governance matters without necessitating their exit from the protocol. Additionally, it allows the DAO to pause and reassess contentious proposals.
The proposed Dual Governance model by Lido Finance represents a significant step towards democratizing decision-making processes within the protocol. By granting stETH holders a more prominent role in governance, Lido aims to foster a more inclusive and participatory ecosystem for all stakeholders involved.