Activate Lido Protocol Governance with Revenue Share Staking

Since we had this discussion less than a year ago, I’ll briefly reiterate why I see this as a bad idea. It results from several flawed assumptions about the economic health of the Lido protocol.

  1. Lido treasury isn’t ~$500m but actually $130m. LDO should be fully discounted

  1. Lido’s annual cost isn’t $16m but was $100m in 2023 and projected to be $50-60m in 2024.

  1. Lido’s surplus is 0, so there isn’t anything to distribute yet

  1. If you tapped into revenue (not surplus) like suggested, you’d have to

    1. Drain the treasury, which isn’t big to begin with. If ETH goes down 50% (to levels last seen 10/2023), both treasury and revenue would halve. This would put us at $65m treasury and ~$30m revenue, while costs would stay the same. That’s less than 2 years of runway.
    2. Increase revenue. The DAO is working on that, but it takes time.
    3. Reduce cost. The only way to do this is to reduce the budget allocated to implementing the DAO’s agreed-on strategic priorities. Given the competitiveness of the staking market, I would see that as a terrible mistake.
    4. Issue more LDO to make up the shortfall. Self-defeating for obvious reasons
  2. So instead, I propose the following steps

    1. Let’s get Lido to a place where it generates a surplus
    2. and can defend that surplus from erosive forces of competition with a solid market position
    3. Closer to that point, establish a good mechanism to share surplus with LDO holders. I’m highlighting the “good” because the current proposal of requiring NOs to post a bond would both (i) undermine Lido’s differentiation to other protocols and (ii) further lower its net income by increasing the cost of revenue.

All charts taken from