In the dynamic landscape of decentralized finance, governance models are continuously being refined to better align the interests of all stakeholders. Leading liquid staking protocol Lido is currently at the forefront of such an evolution, contemplating a significant alteration to its decision-making framework.
A Shift Towards Inclusive Governance
A new proposal, designated LIP-28 and introduced on May 8th, seeks to address a key imbalance within Lido’s ecosystem. Currently, governance power rests solely with LDO token holders. However, the proposal aims to empower holders of staked Ethereum tokens (stETH) – who form the bedrock of the protocol’s liquidity – with the ability to challenge decisions made by LDO voters if they perceive them as detrimental.
This envisioned “dual governance” model would fundamentally alter the current power dynamic. It would grant stETH participants a crucial mechanism to veto proposals they find concerning, without requiring them to exit the protocol entirely to express their dissent.
The Veto Mechanism Explained
The proposal outlines a smart contract-based safeguard. Should a proposal pass that stETH holders wish to contest, they can lock their tokens into an escrow contract. If these escrowed deposits reach 1% of Lido’s total value locked (TVL) in ETH, a delay is triggered for the contested proposal. If the threshold of 10% of ETH TVL is met, the measure is halted completely. Its execution would be reversed until the stETH tokens are withdrawn and converted back into ETH.
Potential Impact on DeFi Governance
Hasu, a strategist at Flashbots, has described this initiative as potentially Lido’s “most important upgrade ever,” highlighting its significance in further decentralizing influence over the protocol.
As Ethereum’s largest liquid staking provider, responsible for managing approximately 27% of all staked ETH, Lido’s move could set a new precedent. It has the potential to redefine how major DeFi projects balance governance control between token holders and liquidity providers, ensuring a more equitable distribution of power.
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