KEYTAKEAWAYS
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Lido transformed Ethereum staking by turning locked ETH into liquid stETH, now deeply embedded across DeFi as a core financial primitive.
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Facing growing competition and declining share, Lido is shifting from a “market share race” to a “use case expansion” strategy, focusing on Layer2 and restaking ecosystems.
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With dual governance, diverse validator onboarding, and insurance funds, Lido balances scale with decentralization, securing its long-term role in Ethereum’s staking economy.
CONTENT
FROM THE 32 ETH BARRIER TO DEFI INFRASTRUCTURE
In the three years since Ethereum shifted from proof-of-work to proof-of-stake, Lido has become the unavoidable entry point for most users. Its original mission was simple: remove the “32 ETH barrier” and let anyone, even with 0.1 ETH, participate in staking, while turning locked rewards on the Beacon Chain into liquid assets. From this idea, stETH was born.
It represents both the user’s principal and the staking rewards, automatically increasing every day through a rebase mechanism. This design quickly made Lido the liquidity hub of Ethereum. Users could take stETH to Curve and swap it for ETH, use it as collateral on Aave and MakerDAO, provide liquidity on Uniswap or Balancer, and even trade interest rates on protocols like Pendle. What began as a staking receipt evolved into a financial primitive — a kind of “credit certificate” that powers leverage loops across DeFi.
This explosive network effect built a deep moat for Lido, but it also brought constant criticism. When its market share approached one-third of all staked ETH, the community raised alarms about the potential risks to Ethereum’s consensus. If a single protocol controls too many validators, it might influence block proposals or censorship. For Lido, this tension is structural: its value comes from scale and liquidity, but the same scale triggers concerns of centralization.
To address this, Lido has tested both expansion and restraint. In 2023, it launched V2 with the Staking Router, turning validator onboarding from a closed list into a modular system, allowing solo stakers, DVT clusters, and smaller operators to join. In parallel, stETH expanded into Ethereum Layer2 networks — from Arbitrum to Optimism, from Base to Linea — aiming to anchor itself not only on mainnet but across the broader ecosystem. For Lido, remaining “indispensable in DeFi” is the best defense against falling market share and rising competition.
BUSINESS GEARS AND GOVERNANCE TENSIONS
Seen as a financial entity, Lido’s revenue model is straightforward: it takes a 10% fee on staking rewards, leaving principal untouched, and splits this between node operators, the DAO treasury, and an insurance fund. In an environment where ETH staking APR hovers around 4%, this means stable annual revenue in the hundreds of millions of dollars. Early on, Lido spent aggressively to buy growth, pouring incentives into Curve’s stETH/ETH pool and multi-chain markets like Polygon and Solana.
In 2021–2022, this strategy led to losses on paper, but it successfully built the liquidity network. By 2023, as competition matured and the market normalized, incentives were cut back, while fee income continued to rise. By 2024, Lido posted its first quarterly profits, and today its treasury holds hundreds of millions of dollars — enough to fund operations and provide a buffer for risk.
Governance is where tensions become sharper. LDO, as the governance token, does not provide direct dividends, raising questions about its value. Yet turning fees into tokenholder payouts could risk securities classification. Lido’s solution was “dual governance”: LDO holders propose and vote, but stETH holders gain veto and delay powers on execution. If a decision is widely opposed, stETH votes can extend execution by days or even weeks, or effectively block it, giving users time to exit or force reconsideration.
This creates a two-house system: a “shareholder chamber” of LDO and a “user chamber” of stETH. Alongside this, safeguards such as timelocks, execution delays, and anti-flash-loan defenses were added. For a protocol holding millions of ETH, these measures are essential. If governance were hijacked, losses would cascade across all DeFi protocols integrated with stETH. By trading some efficiency for resilience, Lido adapts to the reality of its scale.
COMPETITION AND MARKET RESTRUCTURING
Over the past two years, Lido’s share of staked ETH has declined from 32% to around 24%, reflecting a more diverse staking market. Rocket Pool, with its community-driven node model, charges higher fees but has attracted thousands of independent operators, standing for decentralization-first principles. Frax Ether uses a dual-token design, frxETH and sfrxETH, to separate liquidity and yield, appealing to advanced users seeking strategy flexibility. StakeWise, in its v3, experimented with validator marketplaces. On the centralized side, Coinbase and Binance leveraged ease of use and brand trust to capture significant share. Institutional providers such as Figment, Kiln, and Blockdaemon also grew rapidly, offering custodial staking for large clients.
For Ethereum, this diversification is positive: no single entity controls more than one-third, reducing systemic risks. For Lido, it is both threat and opportunity. The threat is slower inflows compared to rivals; the opportunity is relief from “too dominant” scrutiny, giving it space to focus on product and user experience. This is why Lido pulled back from Polkadot and Kusama, while doubling down on Ethereum and Layer2.
It is exploring native staking from L2, where users can initiate without touching mainnet. It also stays compatible with restaking protocols like EigenLayer, ensuring stETH remains usable even in higher-risk strategies. Lido’s growth is shifting from “gaining more ETH” to “expanding stETH’s use cases.” If stETH becomes the default collateral, receipt, or payment token across all scenarios, its liquidity network itself will fuel growth. In short, competition is pushing Lido from “share logic” to “use-case logic,” which may benefit DeFi as a whole.
SECURITY, COMPLIANCE, AND FUTURE COURSE
Any protocol securing tens of billions must answer on security and compliance. Lido has undergone audits by Quantstamp, Sigma Prime, and others, and runs a bug bounty program. Small slashing events were covered by the insurance fund or operators, ensuring stETH users were not harmed. In 2023, Launchnodes misconfiguration led to 20 validators slashed; users were fully compensated.
In 2025, a Chorus One oracle key leak triggered an emergency DAO vote within hours, removing the compromised node. These cases show Lido’s risk management is institutionalized, with clear playbooks for emergencies. On compliance, challenges remain. The SEC’s 2025 clarification that ETH staking is not a security provided relief, but laws differ globally, and DAOs remain in legal gray areas. Lido’s answer is transparency, active engagement with the community, and more professional governance.
The DAO is evolving into specialized subgroups with clearer accountability. Future discussions may revisit token value capture, such as LDO staking or buybacks, but these must come after governance and legal structures are stable. Lido’s true asset is not its treasury balance but the “trust path” of stETH: the belief that it can always be redeemed for ETH and freely used across DeFi. A more decentralized, transparent, and professional Lido will remain a cornerstone of Ethereum staking. Its fate is tied to Ethereum itself: when the network prospers, so does Lido; when risks loom, Lido’s resilience will help safeguard the ecosystem.
