One of the many characteristics that make blockchain technology so exciting is how it fosters trust between decentralized individuals who do not know one another. At a high level, this is accomplished using game theory techniques and establishing financial incentives for these participants to behave appropriately. So, instead of a centralized entity deeming what is true or false, the blockchain creates a dispersed group of individuals who have a financial incentive and shared interest in acting responsibly. These financial incentives and shared interests are cultivated through what is called consensus mechanisms. There are two main types of consensus mechanisms with blockchain technology, Proof-of-Work (PoW) and Proof-of-Stake (PoS). Bitcoin is a PoW blockchain that has received criticism for its inefficiencies, energy consumption, and scalability limitations. Ethereum is also a PoW blockchain but it is currently undergoing “the merge”, which is receiving a lot of interest lately, and transitioning to a PoS system later this year which should mitigate many of those valid PoW critiques. PoS works by participants, aka validators, on the blockchain who choose to use their assets as collateral for a chance to validate blocks, aka batches of transactions, and in return they will receive interest on their staked assets for their contributions. If a validator acts erroneously and begins approving falsified transactions they can lose all of the assets they have staked which is what creates the financial incentive. Currently, Ethereum requires a 32 ETH minimum staking requirement, $111,000 as of writing, to become a validator. This high barrier to entry prevents most people from becoming a validator and earning the 4.79% annual return for staking their assets. Blockchain, Web3, and decentralization are supposed to be about giving power back to the individuals, empowering the masses, and providing opportunities to all, but this high threshold clearly contradicts that. Of course, Web3 wouldn’t let this contradiction last for long and Lido Finance is helping democratize staking for anyone who is interested!
Lido democratizes access to staking by creating staking pools where individuals can stake whatever amount they are comfortable with and earn interest. One of the other downsides with staking is that your staked assets become illiquid and you can no longer use them across the DeFi ecosystem, but with Lido that is no longer an issue. So, while you are staking your assets, earning anywhere from 4-22% APR, you can simultaneously deploy those same assets across the 29 DeFi applications integrated with the Lido platform and earn additional interest on it!
For example, this is analogous to earning 4% annually on the money in your savings account and concurrently using that same money elsewhere to earn additional interest (for reference the highest APY on a savings account currently is .77%). This provides users with liquidity and rewards, in a burgeoning ecosystem, that are hard to find anywhere else. Lido is starting to gain momentum and currently has more than 90 thousand stakers, over $18 billion being staked, and has paid stakers more than $386 million in rewards since its inception! These are very impressive numbers and investors are starting to take notice with a16z announcing a $70 million investment into the company earlier this month.
Lido DAO
Lido also differentiates itself from competitors, such as RocketPool, by taking a decentralized approach through the formation of its DAO. The DAO currently has $774 million in its treasury, over 14 thousand members, and 64 active proposals (DeepDAO).
The DAO is the logical compromise between full centralization and decentralization, which allows the deployment of competitive products without full centralization and custody on the exchanges.
A DAO is an optimal structure for launching Lido because:
Lido is highly dependent on the design and restrictions of the beacon chain
Ethereum 2.0 staking protocol may change and therefore Lido should be upgradable
An insurance provider must be selected and terms for slashing insurance must be negotiated
DAO governance is better than one person or a developer's team for making decisions about changes in Lido
A DAO will be able to cover the costs of developing and upgrading the protocol from the DAO token treasury. The DAO will accumulate service fees from Lido, which can be funneled into the insurance and development funds, distributed by the DAO
Lido DAO Governance Token (LDO)
The current price of LDO is $3.79 and the market cap is $393 million (Source). Benefits for LDO token holders include being able to vote on Lido’s key parameters and submit proposals for any upgrade one might wish to bring to the community. A user’s voting weight will be correlated to the amount of LDO they own.
Web3 is democratizing investment opportunities, redefining our concept of liquidity, and frankly creating new frontiers that previous, and current, generations find hard to fathom. Go tell your mom, dad, grandma, grandpa, or anyone who will listen, that they could earn 4-22% in annual interest on their money while still having the liquidity to use that same money elsewhere and benefit from it. We imagine they would be extremely intrigued and start inquiring about how they could do this, unless they are content with the measly 0.77% APY they are getting from their savings account where their money is also illiquid. Whether your family and friends listen to you, Lido Finance is revolutionizing DeFi and providing tremendous opportunities to all who want to take advantage of it. Join the 91 thousand stakers out there now and participate in the next $383 million in rewards that Lido pays out… let us know what your family and friends say!
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