Lido (LDO) is a secure liquid staking solution designed for Proof-of-Stake (PoS) cryptocurrencies. It supports Ethereum 2.0 (now part of Ethereum mainnet) staking, along with a growing ecosystem of other Layer 1 PoS blockchains. Users can stake their PoS tokens with Lido and receive a tokenized version of their staked assets at a 1:1 ratio. This allows them to earn staking rewards from their deposited tokens while using the tokenized versions to generate additional yield through other DeFi protocols.
Introduction
Staking in PoS blockchains presents a significant challenge: the lack of liquidity for staked assets. Once tokens are locked, users cannot access or redeem them until the lock-up period ends. This prevents users from pursuing additional yield opportunities in other DeFi protocols across the market. Additionally, the complex validator setup and high entry barriers often deter everyday retail users from participating in PoS staking.
To enhance the liquidity of staked tokens and lower the barriers to entry, Lido offers an innovative alternative to traditional PoS staking.
What is Lido?
Launched in 2020, Lido is a liquid staking solution for Ethereum (ETH) and other leading 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, enabling users to earn staking rewards through Lido while simultaneously participating in other on-chain DeFi activities to generate extra yield.
How Does Lido Work?
Liquid staking services like Lido allow users to stake any amount of PoS assets to earn block rewards, promoting broader participation in securing PoS networks. This innovative approach addresses the poor liquidity, complexity, and centralization issues often associated with traditional PoS staking by not locking users' staked tokens. It also lowers the entry barriers and opportunity costs related to locking requirements.
When users deposit PoS assets into Lido, their tokens are staked on the PoS blockchain through the Lido protocol. This relies on a staking pool smart contract that manages user deposits and withdrawals, delegates funds to node operators, determines staking reward fees, and handles the minting and burning of tokens. The smart contract also maintains a full list of node operators, their validation keys, and reward distribution records.
Users receive a tokenized version (stAsset tokens) of their deposited funds. These can be used across the original deposit protocol, other DeFi protocols, and various decentralized applications (dApps) to earn simultaneous rewards. For example, they can serve as collateral for lending or liquidity mining to maximize yield.
Take Ethereum staking as an example. In the long-awaited upgrade known as "The Merge" (formerly referred to as ETH 2.0), Ethereum transitioned to a PoS consensus mechanism. To become a validator and receive payments for confirming network transactions, each user is required to stake a minimum of 32 ETH. For the average user, this minimum requirement is often impractical.
With Lido, users can earn block rewards by staking even fractional amounts of ETH, as low as 0.0001 ETH. After staking their Ether, 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 Lido’s staking pool smart contract and are burned when users withdraw their ETH tokens.
The Ether staked by users is distributed to node operators (validators) within the Lido network and deposited into the Ethereum Beacon Chain for validation. User funds remain secure within the smart contract and are not accessible by the validators. The Lido DAO is responsible for selecting, onboarding, and supporting validator addresses, which are then added to the registry smart contract. The chosen validators receive a set of validation keys.
Deposited ETH is divided into multiples of 32 ETH among all active Lido node operators. These operators use public validation keys to verify transactions involving users' staked assets. Distributing user stakes across multiple validators effectively mitigates the risk of a single point of failure associated with staking with a single validator. Node operators also configure addresses to enable users to withdraw their staked Ether once the withdrawal process is fully enabled post-Merge.
Lido DAO
To manage the Lido protocol in a decentralized manner, Lido introduced a Decentralized Autonomous Organization (DAO). This entity makes key decisions regarding the protocol’s operations, ensuring it aligns with the best interests of stakeholders while promoting transparency and decentralization.
The Lido DAO governs a suite of liquid staking protocols. It uses smart contracts to establish and enforce rules, facilitating an efficient decentralized decision-making process. This includes managing fee parameters and allocations, as well as adding or removing node operators from the network.
What is LDO?
LDO is the native utility and governance token of the Lido ecosystem. 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 the decision-making process by voting on key proposals. The more LDO tokens a user holds, the greater their voting power.
How to Get Started with Liquid Staking
Engaging with liquid staking through Lido is straightforward. Users simply need to connect a compatible Web3 wallet, select the asset they wish to stake, and confirm the transaction. They will immediately begin earning staking rewards and receive the corresponding staked asset tokens (like stETH for Ethereum) which can be used across the DeFi landscape.
👉 Explore advanced staking strategies
As the DeFi space continues to evolve, the flexibility offered by liquid staking is becoming increasingly valuable. It enables users to maintain exposure to their assets’ growth while participating in the security of leading blockchain networks.
Frequently Asked Questions
What is liquid staking?
Liquid staking allows users to stake their cryptocurrencies without locking them up. Instead, they receive a liquid token representing their staked position. This token can be used elsewhere in DeFi, enabling users to earn multiple yields simultaneously.
How does Lido ensure the security of my staked assets?
Lido uses audited smart contracts to manage all staking operations. Funds are distributed across a curated set of professional node operators, reducing risk through diversification. The protocol is also governed by a DAO, ensuring community oversight.
Can I unstake my assets at any time with Lido?
Yes, one of the key benefits of liquid staking with Lido is the ability to unstake without a waiting period. Since you hold a liquid token like stETH, you can trade it on the open market or use Lido’s withdrawal functionality when needed.
What are the risks associated with liquid staking?
Potential risks include smart contract vulnerabilities, de-pegging of the liquid staking token from the underlying asset, and validator slashing. However, Lido mitigates these through audits, insurance funds, and a diversified validator set.
Which blockchains does Lido support?
Lido initially launched support for Ethereum but has expanded to include other major PoS chains such as Solana, Polygon, Polkadot, and Kusama. The protocol continues to explore integration with new networks.
Do I need to run my own node to stake with Lido?
No, that’s the primary advantage. Lido handles all validator operations for you. You simply deposit your tokens and receive liquid stTokens in return, making staking accessible to everyone.
Conclusion
Lido's liquid staking service offers users the full benefits of staking without sacrificing token liquidity. It caters to both small and large PoS token holders, providing the flexibility to stake and redeem funds at any time. By eliminating complex staking setups, Lido significantly lowers the entry barrier to PoS staking. As the DeFi ecosystem grows, liquid staking in protocols like Lido is poised to play a pivotal role in its continued expansion and adoption.