Lido DAO votes on Ethereum centralization risk

Lido DAO votes on Ethereum centralization risk

Lido DAO votes on Ethereum centralization risk

Lido DAO is voting on whether to self-limit its dominance over the Ethereum 2.0 staking game after public criticism that its outsized presence is posing a threat to the future of Ethereum.

The vote ends on July 1.


What is Lido?

Ethereum is moving towards becoming fully proof-of-stake. In the meantime, it is possible to stake your ETH already if you have 32 ETH. However, you will not be able to withdraw any staked ETH until the feature becomes available on Ethereum 2.0, and the 32 ETH requirement also may pose a challenge to some.

Lido fixes this by offering a service called liquid staking; participants can stake any amount of ETH they wish and in return, they will receive the stETH token that is free to trade and use in any DeFi apps, such as Aave. stETH balances are pegged 1:1 to the staked ETH, and the balances are updated as the staked ETH receives its staking rewards. As Lido states:

“Lido attempts to solve the problems associated with initial ETH staking - illiquidity, immovability and accessibility - making staked ETH liquid and allowing for participation with any amount of ETH to improve security of the Ethereum network.”


Self-limiting proposal

Due to Lido’s success, with over $5 billion of ETH staked through its service, some have criticized the app as a potential point of centralization once Ethereum 2.0 launches. Over 30% of overall staked ETH is through Lido:

Vitalik, the creator of Ethereum, tweeted that no single stake pool should control over 15% of the overall amount of staked ETH, which is an opinion echoed by many other ‘Ethereans’.

A proposal on Lido DAO went live that will decide whether Lido will self-limit its staking dominance. At the time of writing, an overwhelming 99.77% have voted against self-limiting. Around 67 million LDO tokens, the governance token of Lido, have cast their vote so far, which comprises 20% of the circulating supply of LDO.

The main argument for self-limiting is to protect against potential exploits due to centralization, and the main argument against includes the risk that centralized exchanges will end up dominating ETH staking and pose an even greater existential threat to Ethereum.

The many exploits in DeFi over the past few months have sparked discussion of whether a single protocol should have a huge dominance in securing a network as prominent as Ethereum. A long research post on Lido’s website has outlined the entire situation, leaving it up to LDO holders to decide for themselves and determine the future of Lido.

This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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