Lido Finance DAO Mulls Introducing New Dual Governance Model

The industry’s most popular liquid staking solution Lido Finance is unpacking a whole new layout for its tokenomics.

LidoDAO’s business development contributor Marin Tvrdić told Decrypt during this year’s EthCC event that its members are “pushing” for a dual governance model.

If passed, it would give Lido users–specifically those who are staking Ethereum and hold stETH–veto power on governance proposals approved by LDO holders.

"The LDO token is a governance token with the main function of the token is to vote on proposals," said Tvrdić. "In a democratic way, you give power to the holders to choose what happens with the protocol. This raised concerns with stakers. No hiding, it did happen. There were concerns."

Lido is the leading decentralized platform for liquid staking ETH, allowing investors to stake ETH with the network’s validators and earn rewards. In exchange for doing so, they receive a token representation of their deposit called stETH. Stake one ETH, and get one stETH in return.

The stETH token has been integrated throughout the DeFi sector, allowing stakers to remain liquid while their funds are busy at work securing the network.

Per data pulled from Dune, Lido currently commands 31.7% of the entire staking market. Coinbase comes in second (9.6%), followed by Binance (5%).

With so many users and so much money sloshing around, the protocol’s DAO is now looking to introduce new checks to ensure its community is aligned.

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The current governance system for Lido is based on LDO, which means that only LDO holders can vote on proposals. Naturally, this gives LDO holders a degree of power over the protocol that stETH holders don’t have. This can have consequences, if, for instance, LDO holders move to change something that could negatively those impact liquid stakers.

"Being an LDO holder doesn't mean you need to be an Ethereum staker," Tvrdić told Decrypt.

In June 2022, a core contributor to LidoDAO, a pseudonymous developer named skozin.eth introduced the concept of dual governance. This proposal aims to grant stETH holders veto power over the DAO's governance decisions.

The proposal has yet to move behind discussion to a vote. Moderators in the Lido DAO said that research is not complete on an updated version of the proposal.

Tvrdić told Decrypt, “What will change for the protocol, as a LDO holder, you can vote, but if the proposal is not good enough, and stakers decide it is not good enough, they can shut it down.”

Yearn recently launched its staking derivative, yETH, along with a similar dual-governance model, where staked ETH holders have self-governing powers instead of YFI tokens.

YFI token holders will only receive a portion of the protocol’s revenue from staking.