What is Lido (LDO)?

Lido (LDO) is a secure liquid staking solution for proof-of-stake (PoS) cryptocurrencies, supporting Ethereum 2.0 (merging) staking and the growing ecosystem of other Layer 1 PoS blockchains. Users can stake PoS tokens into Lido and receive a 1:1 tokenized version of their staked assets. They can use the tokenized version of their staked assets to earn additional yields from other DeFi protocols while earning staking rewards from the tokens deposited in Lido.

Introduction

Staking on PoS blockchains faces a challenge: lack of liquidity for staked assets. Once tokens are locked, users cannot access or redeem them before the end of the lock-up period, losing the opportunity to earn extra yields from other DeFi protocols in the market. Complex validator setups and high entry barriers also prevent ordinary retail investors from participating in PoS staking.

To enhance the liquidity of staked tokens and lower the barrier to participation, Lido offers an alternative to traditional PoS staking.

What is Lido?

Founded in 2020, Lido is a liquid staking solution for Ethereum (ETH) and other PoS blockchains, including Solana (SOL), Polygon (MATIC), Polkadot (DOT), and Kusama (KSM).

Lido issues users a 1:1 tokenized version of their staked assets. This provides liquidity for staked PoS tokens, allowing users to earn staking rewards while participating in other on-chain activities within DeFi to generate additional yields.

How does Lido work?

To enable more users to participate in protecting (PoS) networks, through liquid staking services like Lido, users can stake any amount of PoS assets to earn block rewards. Liquid staking is an innovative alternative that solves the issues of poor liquidity, complexity, and centralization in PoS staking by not locking users’ staked tokens. It also lowers the entry barrier and opportunity costs associated with lock-up requirements.

After depositing PoS assets into Lido, their tokens are staked via the Lido protocol on the PoS blockchain. This is a staking pool smart contract that manages user deposits and withdrawals, delegates funds to node operators, determines staking reward fees, and handles token minting and burning. Additionally, the smart contract contains a complete list of node operators, validation keys, and reward distribution records.

Users receive a tokenized version of their deposited funds (stAsset tokens), which can be used to earn rewards in the original deposit protocol, other DeFi protocols, and decentralized applications (dApp) simultaneously, such as collateral for loans and liquidity mining, maximizing yield.

Taking Ethereum staking as an example. In the highly anticipated “Merge” upgrade (formerly ETH 2.0), Ethereum transitioned to PoS. Each user must deposit a minimum of 32 ETH to become a validator and receive rewards for confirming network transactions. However, this minimum staking requirement is not practical for ordinary users.

With Lido, users can stake just 1 ETH to earn block rewards. After staking ETH, users receive stETH, an ERC-20 token representing their deposited ETH at a 1:1 ratio. stETH tokens are minted when funds are deposited into the Lido staking pool smart contract, and destroyed when users withdraw their ETH tokens.

The staked ETH is distributed to node operators (validators) within the Lido network and deposited into the Ethereum Beacon Chain for validation. Funds are protected within the smart contract, and validators cannot access them. Subsequently, the Lido DAO will select, load, and support validator addresses, adding them to the registry smart contract. The chosen validators will then receive a set of validation keys.

The deposited ETH is divided into groups of 32 ETH among all active Lido node operators, who will use public validation keys to verify transactions involving user staked assets. Distributing user stakes across multiple validators effectively eliminates single point of failure risks associated with staking on a single validator. Additionally, node operators will set addresses so that users can withdraw their staked ETH after the merge is complete.

Lido DAO

To manage the Lido protocol in a decentralized manner, Lido has launched a decentralized autonomous organization (DAO), which makes key decisions regarding the operation of the protocol. This ensures the protocol aligns with the best interests of stakeholders and enhances transparency and decentralization.

Lido DAO governs a set of liquid staking protocols. It uses smart contracts to define and implement rules, facilitating efficient decentralized decision-making. This includes managing fee parameters and distributions, as well as adding and removing node operators from the network.

What is LDO?

LDO is Lido’s native utility and governance token. It is an ERC-20 token with a total supply of 1 billion.

LDO is used to reward network users. It also grants holders governance rights within the Lido DAO, allowing them to participate in governance by voting on certain decisions. The more LDO tokens held, the greater the voting power.

Summary

Lido’s liquid staking service offers users comprehensive staking benefits without sacrificing token liquidity. It caters to both small and large PoS token holders, enabling flexible staking and redemption at any time. Additionally, by eliminating complex staking setups and lowering the entry barrier for PoS staking, liquid staking protocols like Lido will drive the vigorous development of DeFi in the future. **$WLD **$HOLD **$LDO **