Lido suggests a dual governance enhancement to give stETH holders a greater voice in decision-making.
Lido’s governance community is evaluating a new initiative aimed at increasing the influence of staked Ethereum (stETH) holders in protocol governance.
The proposal, referred to as Lido Improvement Proposal 28 (LIP-28), introduces a Dual Governance system.
Currently, only holders of LDO tokens possess the ability to vote on modifications to the Lido protocol, granting them full authority over decisions that impact the entire ecosystem, which includes those who stake ETH and receive stETH in return.
While stETH holders play a crucial role in the platform’s viability, they currently have no official means to challenge or influence DAO proposals.
The proposed DeFi initiative seeks to empower stETH holders to participate more actively in decision-making processes, particularly in instances where decisions made by LDO token holders might be contentious.
Lido stands as Ethereum’s most prominent liquid staking platform, managing approximately 27% of the overall ETH staking market. The protocol enables users to stake ETH with validators in exchange for stETH, which can then be utilized in DeFi applications, providing users with both flexibility and liquidity.
Understanding Lido’s Dual Governance Model
The proposed framework introduces a timelock mechanism that acts as a buffer between DAO proposals and their implementation.
As outlined in the proposal, this delay allows stETH holders an opportunity to react if a decision is likely to have adverse effects on them. They can express their concerns by locking their stETH, wstETH, or withdrawal NFTs in a dedicated escrow contract.
Once the total deposits in escrow reach 1% of Lido’s total Ethereum value locked (TVL), a delay period commences. If the deposits increase to 10% of TVL, the proposal enters what is known as a “rage quit” phase, preventing any action on the proposal until the locked tokens are converted back to ETH.
This approach provides stETH holders a significant voice while not compelling them to disengage from the protocol entirely. It further enables the DAO to pause and reevaluate contentious proposals.
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