Lido’s Staked Ether Holders Receive Enhanced Governance Powers

Lido Finance, the preeminent platform for liquid staking on Ethereum, has put forth a new proposal that allows holders of staked ether (stETH) to participate in governance alongside existing DAO tokenholders.

This initiative is known as Lido Improvement Proposal (LIP) 28 and sets forth a dual governance framework that permits stETH holders—who stake ETH through Lido and receive a corresponding liquid token—to partake in a veto power concerning significant protocol initiatives. Presently, only holders of Lido’s governance token, LDO, have a voice in the protocol’s direction.

With the proposed changes, stETH holders would gain the ability to veto certain proposals that have been accepted by LDO tokenholders, although they would not have the authority to unilaterally introduce proposals.

The underlying rationale for this proposal is to bolster accountability and decentralization, particularly as Lido maintains a substantial influence over Ethereum’s staking space, with over 25% of all ETH staked via its infrastructure.

The Dual Governance system incorporates a specific timelock contract that interlinks Lido DAO’s decisions with their implementation, giving stETH holders an opportunity to take action if they strongly disapprove of a proposal.

This dynamic timelock is essential as it reflects the operational mechanics of on-chain governance. Currently, decisions are not executed immediately; there is a predetermined period before they are implemented, allowing users to respond if they disagree with certain modifications.

However, the nature of Ethereum staking complicates matters as withdrawing or unstaking ETH is not instantaneous, even with the existing timelock. The process involves intricate liquidity and often entails waiting in a queue for several days before completing a withdrawal.

The new proposal aims to address these concerns. It suggests that if enough dissatisfied users deposit their stETH (or equivalent wrapped stETH) into a specified escrow for withdrawal, the duration of the timelock would incrementally increase—this is termed crossing the “first seal” (set at 1% of total Lido ETH staked).

Should dissatisfaction persist, and deposits surpass the “second seal” threshold (10% of Lido’s total value locked), a “rage quit” would occur: executing the DAO’s decision would be entirely halted until all dissenting stakers have been afforded the opportunity to withdraw their ETH.

This measure acts as a safety mechanism, enabling stakers to convey their objections and exit while allowing the DAO sufficient time to react or retract the contentious proposal.

This plan coincides with a more than 30% surge in Ethereum’s value over the past week, fueled by momentum from its recent upgrade aimed at enhancing scalability and efficiency.

The rising interest in Ethereum-native applications like Lido is significant, as they play a vital role in capital movement and validator participation throughout the network, impacting the market structure of ETH.

Currently, the LIP-28 proposal is under discussion, with a formal on-chain vote anticipated in the near future. If sanctioned, this change could redefine how governance is structured within Ethereum’s staking ecosystem and may serve as a model for other decentralized finance (DeFi) protocols looking to integrate active user participation beyond mere token ownership. Lido faces competition from platforms such as Rocket Pool and Frax Ether.

Recent data indicates that LDO prices have increased by 6.5% in the last 24 hours, while a broader market index has risen by 2.5%.