Lido Explained
Learn about Lido's liquid staking solutions with attractive APRs, a robust validator pool, and significant TVL, poised to transform the DeFi ecosystem.
Summary: Lido offers an innovative, decentralized liquid staking solution for Ethereum and Polygon, featuring competitive APRs and a high total value locked, enhancing asset liquidity in the DeFi ecosystem. Governed by its DAO, Lido prioritizes community involvement in decision-making, reinforcing its dedication to decentralization and the advancement of DeFi.
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What is Lido?
Lido offers a decentralized liquid staking solution, where on Ethereum, users can stake any amount of ETH and gain daily rewards at an annual percentage rate (APR) of 3.7%, with a total value locked (TVL) of over $17 billion. Similarly, on Polygon, users can stake MATIC tokens, enjoy an APR of 4.4%, and contribute to network decentralization, all while their stMATIC value grows. Lido's design ensures these staked assets remain liquid, allowing users to leverage their stETH and stMATIC within the broader DeFi ecosystem without locking them away.
The governance of Lido is conducted by a Decentralized Autonomous Organization (DAO), where every LDO token holder can participate in the protocol's decision-making process. This inclusive and transparent system not only reflects Lido's commitment to decentralization but also ensures that the collective voice of the community guides the protocol's future.
How to Stake on Lido Finance
Staking on Lido Finance is a straightforward process designed to be accessible for users of all experience levels. Here's how you can stake your tokens using Lido:
- Visit Lido: Visit Lido.fi and connect your MetaMask, Coinbase or alternative Web 3 wallet.
- Select Asset: Select Ethereum (ETH) or Polygon (MATIC) as the crypto asset you want to stake via Lido.
- Specify Amount: Input the amount you wish to stake to see the corresponding stTokens you'll receive.
- Confirm Transaction: Approve the staking transaction in your wallet, accounting for the necessary network fees.
- Acquire stTokens: Receive stTokens, which represent your stake and will accrue rewards over time.
- Monitor Rewards: Check the increase in your stTokens' value as rewards are added, which you can view in your wallet or on Lido’s platform.
Always remember to stake tokens you can afford to have locked up for the staking period and ensure you're comfortable with the level of risk involved in staking cryptocurrencies.
What are Lido Staking Yields?
Lido offers staking rewards that are distributed to users who stake their cryptocurrencies through its platform. The staking rewards consist of two components:
- Staking Yield: This is the return generated from staking the native tokens on the blockchain. For example, when you stake Ethereum (ETH) through Lido, you receive stETH, which accrues rewards over time based on the staking yield of the Ethereum network.
- Lido's Token Emissions: In addition to the staking yield, Lido may also distribute rewards through its native governance token, LDO. The distribution of LDO tokens is determined by the governance decisions of the Lido DAO.
The actual Annual Percentage Rate (APR) of these rewards can vary based on network conditions, total staked amount, and other factors. As of the latest data, Lido offers an APR of around 4.3%, although this rate is subject to change.
Is Lido Safe?
Yes, Lido is considered a secure platform for staking cryptocurrencies. It manages a robust network of 278,942 validators, which accounts for a 31.71% network penetration, showcasing its expansive reach. With a backward-looking APR of 4.3%, Lido provides competitive staking rewards. Its effectiveness rating stands at 97.7%, although it ranks in the bottom 25% percentile, indicating areas for potential enhancement.
The security of Lido is bolstered by a diverse range of established node operators such as Everstake and Figment, each holding a 1.14% share of network penetration and effectiveness ratings above 97%. This decentralization of validators reduces risk and ensures a more secure staking environment.
The platform's commitment to operational integrity is further evidenced by comprehensive audits from respected security firms, including Sigma Prime, reinforcing its position as a trustworthy staking service.
What can I do with stETH?
Staked Ethereum (stETH) is a liquid token representing your staked ETH in the Lido protocol. It is the most popular product by Lido and accounts for over 95% of the protocol’s total value locked (TVL). Here are several options for utilizing your stETH:
- Earn Rewards: By holding stETH, you accumulate staking rewards, which compound over time, mirroring the income from the staked ETH and Lido's reward mechanisms.
- Engage with DeFi: stETH’s liquidity allows you to use DeFi protocols. For instance, you can contribute to a liquidity pool pairing stETH with ETH on platforms like Aura Finance, potentially earning additional yield.
- Trading and Collateral: stETH can be traded on decentralized exchanges or used as collateral in DeFi lending platforms for further trading or investment opportunities.
- Optimize for Layer 2: Convert stETH into its non-rebasing counterpart, wstETH, to leverage it on Layer 2 solutions such as Arbitrum or Optimism, which may offer higher yield prospects.
It's vital to approach DeFi engagements cautiously, conduct thorough research, and consult financial advisors to navigate risks appropriately.
Lido (LDO) Tokenomics
Lido's tokenomics centers around the LDO token, which facilitates governance and decision-making within the Lido DAO. The LDO token ensures decentralized control over the protocol's development, with a total supply of 1 billion tokens. The distribution includes allocations to the DAO treasury, founders, investors, validators, signature holders, and developers, fostering an ecosystem that prioritizes transparency, community engagement, and protocol growth.
- Purpose: Lido DAO governs decentralized liquid staking on Ethereum with LDO tokens.
- Total Supply: 1 billion LDO tokens.
- Distribution: DAO Treasury (36.32%), Founders/Vesting (locked for 1 year, then vested over another year), Circulating Supply includes airdrops and LP rewards.
- Token Allocation: Investors (22.18%), Validators/Signature Holders (6.5%), Developers (20%), Founders/Employees (15%).
- Utility: Voting on governance decisions. No fee switch has been activated yet.
- Emission Schedule: Governed by DAO votes, without a fixed schedule, for ecosystem development.
What is Lido V2?
Lido V2 introduces a transformative update to the protocol, incorporating a Staking Router that paves the way for various Node Operators to participate, including those utilizing Distributed Validator Technology (DVT). This feature broadens the scope of decentralization and allows for a 1:1 withdrawal mechanism for stETH holders, reinforcing Lido's mission to offer a secure and accessible staking platform that upholds the decentralized ethos of Ethereum.
This version is not only a stride toward flexibility and inclusivity but also an affirmation of Lido's role in the DeFi landscape. By integrating DVT and expanding Node Operator diversity, Lido V2 ensures a resilient, decentralized network and grants users enhanced security and autonomy over their staked assets.
Why did Lido Sunset Solana?
The Lido DAO, after evaluating a proposal by the P2P Validator team, opted to discontinue Lido on Solana, preferring to focus on the overall growth of Lido's protocol ecosystem. The decision was made through a community vote, reflecting the collective governance model of Lido.
While staking was halted on October 16, 2023, users can unstake their SOL until February 4, 2024. The resolution, although tough, aligns with Lido's strategic objectives and does not diminish the organization's confidence in Solana's prospects.
Bottom Line
Lido emerges as a key player in the DeFi space, providing a streamlined, decentralized liquid staking solution on Ethereum and Polygon with attractive annual percentage rates and a substantial total value locked. It allows staked assets to stay liquid, integrating seamlessly into the DeFi ecosystem, while its DAO ensures governance is democratic and community-led. Lido's approach to combining technical innovation, user empowerment, and collective decision-making highlights its commitment to pushing the DeFi ecosystem forward, positioning it as a vital pillar in the landscape of decentralized finance.
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