Liquidity staking is all the rage in decentralized finance these days. For example, the Lido DAO (LDO) was CoinMarketCap’s 10th most trending cryptocurrency on 4 January 2023.
The Lido DAO (Decentralized Autonomous Organization) had $6.165 billion in total staking assets on 5 January 2023. Lido claims to have paid $265.938 million in total rewards to 245,382 stakers as of 5 January 2023.
How the Lido DAO works
Lido (LDO) staking provides liquidity for Ethereum (ETH) blockchain assets. In particular, liquidity for lending and other on-chain transactions. They built Lido to solve Ethereum liquidity staking problems and improve Ethereum blockchain performance. Notably, they claim the Lido DAO can stake any amount of Ethereum (ETH).
The Lido DAO works by staking Ethereum and Ethereum Request for Comment (ERC-20) tokens one-to-one with stETH tokens. Each stETH token represents the amount of a user stakes through Lido. The stETH tokens combine the amount of the initial deposit, staking rewards, and penalties. Users can use stETH tokens in the Lido DAO and earn ETH staking rewards.
In contrast, the LDO token is an ERC-20 token that grants governance rights in the LIDO DAO. The LIDO DAO governs a set of liquid staking protocols that the parameters, fees, and protocol upgrades for staking. LDO token holders govern the DAO by voting.
What Value can the LIDO DAO (LDO) Generate?
The LIDO DAO stakes tokens from five blockchains: Ethereum (ETH), Solana (SOL), Polygon (MATIC), Polkadot (DOT), and Kusama (KSM).
LIDO’s largest holding is Ethereum (ETH). LIDO had $6.074 billion in Staked ETH that paid a 4.5% APR on 5 January 2023. In contrast, LIDO had $31.282 million in SOL staked at a 7.4% Annual Percentage Rate (APR) on 5 January 2023. LIDO also had 46.381 million in Polygon that paid a 6.3% APR on 5 January 2023. There was $11.26 million in Polkadot that paid a 15.2% APR on 5 January 2023 and $2.538 million in Kusama that paid a 13.7% APR on 5 January 2023.
They claim LIDO operates the biggest Liquidity Pool with 4.850 million ETH staked on 5 January 2023. LIDO claims to have paid 208,636 Ethereum rewards by 5 January 2023. Curve, Yearn, Sushi, and 1inch are among protocols that LIDO users can access. Lido makes money by charging a 10% fee on Ethereum staking.
When LIDO stakes a token, it creates a synthetic asset. A synthetic asset is a digital asset you can only use on a particular platform. For example, staking Solana creates stSOL, staking Polygon creates stMATIC, staking Polkadot creates stDOT, and staking Kusama creates stKSM. Each of these tokens contains the initial investments any rewards earned.
Users stake any amount of these tokens to get liquid stTokens. They use the stTokens across decentralized finance (DeFi) to compound more daily staked rewards.
The Lido (LIDO) Ecosystem
Lido’s staked liquidity supports many decentralized applications and DeFi protocols. These protocols form the Lido Ecosystem.
DeFi protocols LIDO provides liquidity for include the 1nch decentralized exchange (DEX) aggregator, MakerDAO which allows users to use tokens as loan collateral, Curve which provides liquidity for stablecoin trading, SushiSwap Onsen allows users to stake tokens for daily liquidity rewards, and StakeEther allows users to stake ETH for daily rewards. Ledger lets people stake with Lido from a Ledger wallet. Plus, AAVE lets users earn interest from deposits and borrow assets.
Yearn provides liquidity for automated lending and trading strategies. Balancer is an automated portfolio manager and trading platform. Zerion is an integrated platform that stores and manages Ethereum assets. Zapper manages DeFi portfolios, Unslsahed Finance is a decentralized blockchain-based cover protocol. The InToken is a cryptocurrency wallet.
Nexus Mutual offers insurance, Tempus stakes Ethereum for a fixed rate yield. In contrast, the Ribbon Protocol uses assets as options to generate sustainable and risk-adjusted yield. Convex Finance provides liquidity protocol (LP) tokens to different pools for Curve Liquidity farming. Euler is a lending protocol for crypto assets.
Lido Audits and Governance
LIDO uses smart contracts to provide liquidity and conduct transactions. Smart contracts are digital robots that operate on the blockchain.
The LIDO DAO uses four organizations: Sigma Prime, ChainSecurity, MixBytes, Oxorio, and State Mind for smart contract audits. The purpose of the audits is to prove that LIDO has the assets and can provide the liquidity. Importantly, these organizations audit the smart contracts to see if they work and are secure. They make the audit reports available on GitHub.
Like other DAOs, LIDO has a formal governance process. The process includes:
They publish proposals in the Research forum for seven days. LIDO token holders review the proposals and offer feedback. The next step is gasless Snapshot voting. That means you can vote without paying to paying to use the Ethereum Virtual Machine (EVM). The EVM is the digital computer that runs the Ethereum blockchain. Gas is the fee Ethereum users pay to access the EVM. They also use Aragon DAO on-chain voting for changes to critical features.
LIDO makes grants to developers through the Lido Ecosystem Grants Organization (LEGO). The purpose of the grants is to create new applications for the LIDO Ecosystem. A reWards Committee manages the incentive distribution for Liquidity Providers.
A Resourcing and Compensation Committee (RCC) oversees payroll and contributor related expenses. A Referral Program Committee encourages wallet and DeFi protocol developers to promote LIDO.
Lido on L2 controls token and bridging contracts through Arbitrum and Optimism. There is an emergency track voting process on Aargon that bypasses Snapshot and the research forum when the DAO needs a quick decision.
The Lido Node Operator Subgovernance Group (LNOSG) manages the node-operator registry and rewards the node operators who support the LIDO DAO. For example, it creates mechanisms that reward good node operators and eliminate bad node operators.
What Value does LIDO DAO (LDO) offer?
Mr. Market has some interest in the Lido DAO (LDO). For example, CoinMarketCap named LDO the 36th ranked cryptocurrency with a $1.38 Coin Price on 5 January 2023.
CoinMarketCap gave LDO a $1.133 billion Market Capitalization, a $1.376 billion Fully Diluted Market Cap, a $6.0183 billion Total Value Locked, and an $72.342 million 24-Hour Market Volume on 5 January 2023. There was also a $62.743 million Centralized Exchange (CEX) Volume and a $9.858 million Decentralized Exchange Volume on 5 January 2023. They base those numbers on an 823.971 million LDO Circulating Supply and a one billion LDO Total Supply.
In contrast, the LIDO DAO (LDO) was CoinGecko’s 37th ranked cryptocurrency, with a $1.37 Coin Price on 5 January 2023. CoinGecko gave LDO a $1.137 billion Market Capitalization, a $1.370 billion Fully Diluted Valuation, a $6.158 billion Total Locked Value, and a 24-Hour Trading Volume of $66.145 million on 5 January 2023. They based those numbers on a 830.265 million LDO Circulating Supply and a Total Supply of one billion LDO.
I think the Lido DAO (LDO) could become one of the most valuable DeFi protocols because of Ethereum’s popularity. Ethereum is the world’s most popular blockchain. For example, Etherscan estimates there were 739,908 ERC-20 token contracts on 4 January 2023. Each one of those contracts could use LIDO to generate liquidity.
If you want to cash in on the growth and popularity of Ethereum (ETH) you need to investigate the Lido DAO (LDO).
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