Lido Protocol Does Eth 2.0 Staking but With a DeFi Twist

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There is a decentralized autonomous organization (DAO) with which ETH owners can support Ethereum 2.0 without losing liquidity and which wants to give their participants a voice.

Until February 12, ETH holders have the opportunity to receive part of the governance token for Lido, a new protocol for decentralized finance (DeFi) and staking. There will be more options in the future, but it’s up to the LDO owners to decide when.

Since Tuesday, the number of ETHs placed on Lido has more than doubled, breaking 60,000 ETH at the time of this writing.

Lido sits at the sweet spot of Ethereum and leads the way to Eth 2.0 in DeFi. It gives people a new way to help ETH participate in the new Ethereum beacon chain, but still unlock the value of their ETH. It’s one of those stories that weighs a bit on believability, a scenario only found in DeFi. So far it works.

Kraken has already launched a similar product and Coinbase plans to do so, but these lack the element of distributed trust.

An early Lido supporter and a member of the DAO, Stani Kulechov from Aave, told CoinDesk over Telegram: “Tokenized Staking ETH is interesting because you can use the Tokenized Staked ETH as collateral (for example in Aave) and more liquidity in the ETH I am curious to see how much leverage can be used when using Eth 2.0. “

In addition, Lido has a governance token, but it is distributed in a unique way. In contrast to Compounds COMP, which announced an eternal income plan, or Yearn, which unloaded everything super fast, Lido distributes its governance token at its own discretion of its stakeholders.

Lido’s governance token is called LDO. There are 1 billion of the tokens and 64% of them are dedicated to the founders and other early participants who made Lido operational, but this huge stash is locked for a year and then distributed (non-forfeitable) the following year.

Prior to the new distribution, which began January 13, there are approximately 360 million tokens in the DAO treasury, but only 4 million tokens have ever been liquidated.

These 4 million were distributed to “Early Staker and DAO Treasury Token” before the LDO was announced.

The distribution to depositors in the stETH / ETH pool on Curve, which has just begun, will issue a further 5 million LDOs by February 12th. To gain access to the Airdrop, users just need to contribute to Curve’s stETH / ETH pool and then insert the LP tokens (Liquidity Provider) they receive into the Curve display. You can find step-by-step instructions on the Lido blog.

As an added benefit, holders who do so will also receive Curve’s CRV token.

As of this writing, LDO is trading around $ 1 each.

What is Lido?

Lido is a DAO that aims to provide users with a route to their ETH behind the new iteration of Ethereum without really affecting liquidity. The team formulated it in a primer. The fact that this works is somewhat noteworthy.

As we previously reported, once a crypto commits its crypto to the Eth 2.0 stakeout, most likely it won’t be available until 2022 at the earliest (although miracles may never stop). Regardless of this, there is no going back after ETH.

Those who deposit the ETH in Lido in order to bet for Eth 2.0 receive in return stETH, which stands for marked ETH.

This is the part that will sound a bit unbelievable to outsiders: This version of ETH basically trades on parity with regular ETH.

On the other hand, stETH is a token for Ethereum, which means that it cannot be used to pay for gasoline. That seems to suggest that it would have less value. On the other hand, stETH earns a return from its commitment and ETH does not. So maybe the two balance each other out.

Last month, CoinDesk estimated that each examiner at ETH was making about $ 6 a day, but earnings are also on lockdown.

But stETH receives this income in the form of fresh stETH. It is a cryptocurrency that is based anew every day, like Ampleforth. Everywhere it is there is more STETH displayed. Users can trade it in and whoever receives it earns the return that the previous owner had.

Ethereum 2.0 distributes a fixed amount to the stakers every day. The more ETH gets in, the less each ETH used earns, so users earn the most ETH at the start of their assignment.

“Currently the rate, based on the number of participants, is 11.1%,” Lido Marketing Director Kasper Rasmussen told CoinDesk in a phone call.

Backers do not receive 100% of the return; 10% is earmarked for the DAO, which currently largely funds its insurance against cuts. Ultimately, it will likely determine some of the returns to pay for validators.

At the time of this writing, almost 63,000 STETH were minted, which were kept at almost 1,500 addresses.

Who is dropping off?

Stakeout service providers are selected by the DAO. Users who bet ETH cannot choose which staker their ETH goes to when they put it in Lido.

“In order to become an approved operator for LIDO, this will be discussed by the LIDO community and coordinated by the token holders,” explained Rasmussen.

The stakers are currently well known stakeout companies in the area. The current stakeout providers are all members of the DAO, Stakefish, Staking Facilities, P2P, Certus and Chorus One. Any company can propose joining through the Lido DAO governance portal on Aragon.

Who started it?

Lido’s DAO members are Semantic Ventures, ParaFi Capital, Terra, KR1, P2P Capital, Bitscale Capital, Stakefish, Staking Facilities and Chorus One, Rune Christensen from Maker, Stani Kulechov from Aave, Banteg from Yearn, Will Harborne from Deversifi , Julien Bouteloup from Stake Capital, Jordan Fish and Kain Warwick from Synthetix, ”Rasmussen wrote in an email.

They collectively donated $ 2 million to get the project off the ground.

Why curve?

Rasmussen said the advantage of Curve is that it took stETH’s rebasing factor into account. When using a traditional automated market maker (AMM) that is simply based on the ratio of the two tokens in the pool, the daily change can throw the balance off balance.

“The risk here is when you provide liquidity. Instead of receiving your daily wagering rewards, you run the risk of being tossed away by other traders,” said Rasmussen.

Curve’s creator Michael Egorov said it was a relatively simple solution that they had already covered via Aave tokens. “We support the way stETH works (e.g. a growing crowd like Aave aTokens instead of increasing the value of each token as it is deployed),” he told CoinDesk in an email.