Dynamic Buyback Program for LDO

Proposals
1

Lido DAO Proposal: Introducing a Dynamic Buyback Program for LDO

Lido DAO has accumulated a $109M+ surplus in the treasury

  • $17.0M USDC
  • $11.9M USDT
  • $12.2M DAI
  • 28,640 stETH (≈$105M)

As a result, Lido’s treasury has accumulated over $145 million in liquid tokens that generate no revenue for the protocol.
This creates an opportunity to enhance value for token holders while keeping the treasury healthy and functional

1. TL;DR

I propose initiating a dynamic buyback program for LDO tokens.

I have taken into account the previous feedback from forum participants who shared similar ideas, but most of them were based on inaccurate calculations of protocol revenue and did not consider potential necessary expenses, which are indeed difficult to estimate precisely.

That’s why my proposal is not based on revenue, but rather on the current treasury balances

The goal is to restore confidence in the token’s value, better utilize treasury funds, and reward the Lido community for long-term engagement.

I propose a dynamic allocation strategy for treasury utilization:

  • 70% of incoming liquid tokens to be used for periodic LDO buybacks
  • 30% retained in the treasury for operational and strategic use

Dynamic safeguard thresholds:

  • If the liquid treasury is between $50M and $85M, the allocation adjusts to a balanced 50% buybacks / 50% retention
  • If the liquid treasury falls below $50M, the allocation automatically shifts to 0% buybacks / 100% reserve retention, pausing buybacks until the threshold is restored

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This structure ensures long-term sustainability of the DAO while allowing for consistent value accrual to LDO holders during periods of healthy treasury balance.

By introducing a mid-range buffer zone (between $50M and $85M), the transition into and out of full buyback mode becomes smoother and less abrupt, making the buyback schedule more predictable and reducing volatility around threshold conditions

2. Adoption of Buyback Models in DeFi

Buybacks are a proven tool in decentralized finance to return value to tokenholders, support token price, and enable long-term sustainability. Several notable examples illustrate how this strategy has been effectively applied (this is just a set of recent examples):

  • Jupiter Exchange has committed to using 50% of revenue for buying back JUP, reinforcing value alignment with its community.

  • AAVE authorizes the Aave Finance Committee (AFC) to initiate AAVE buybacks as part of the Aavenomics implementation

  • dYdX is launching the $DYDX Buyback Program, reinforcing long-term confidence in the token and strengthening its role in the ecosystem

  • Derive swaps DeFi tokens held in the Derive DAO treasury for USDC and allocate the proceeds to increase weekly $DRV token buybacks

  • Origin Protocol allocated [100% of revenue and treasury funds to support OGN price by buybacks]

  • SKY (former Maker DAO). Buyback in Sky is an automated, contract-controlled process triggered when there is a surplus of funds in the Surplus Buffer

3. Objectives

  • Strengthen LDO’s market value, improving confidence for both current holders and future tokenholders.
    A rising token price reflects positively on the project’s perceived health and success, attracting more participants to the ecosystem. It also counteracts prolonged downward pressure, helping to restore confidence in the token as a valuable asset

  • Reward contributors and DAO participants by reducing supply and creating positive price pressure.
    Long-term contributors, voters, and DAO participants are often exposed to significant volatility. A buyback program serves as a signal that their commitment is recognized and valued. By creating upward price pressure and reducing the token supply, it rewards their patience and involvement. This strengthens the social contract between the DAO and its community, promoting loyalty and longer holding periods

  • Encourage long-term governance participation by aligning incentives.
    A well-executed buyback strategy helps restore confidence in the token’s long-term value and ensures that governance participation is not financially punitive. It aligns incentives by showing that the DAO is committed to supporting the token’s health and the people who help shape its future

  • Establish a cyclical token economy: buybacks return LDO to the treasury, enabling future strategic use (e.g., contributor rewards, grants and so on).
    This cyclicality transforms buybacks from a one-off expense into a strategic allocation that supports long-term development and adaptability

This leads to a sustainable treasury model, where capital is not simply spent, but cycled to reinforce DAO health and ecosystem growth.

4. Potential concerns or objections

No direct benefit for stETH holders

Clarification:

  • stETH holders receive staking rewards, and this initiative does not reduce their returns
  • Meanwhile, LDO buybacks provide value accrual for LDO holders, which currently does not exist

May compete with other DAO priorities, such as grants and so on

Clarification:

  • Since I’m not proposing to burn the bought-back tokens, they remain on the treasury balance and can be used later for protocol development
  • Thus, supporting the token price actually increases incentive potential in LDO for contributors and partners

Why exactly 70/30?

Clarification:

– This ratio is based on current treasury composition, where ~30% corresponds to the $50M threshold — a safeguard against overspending during bear markets or unforeseen expenses

– If this allocation hits the minimum reserve too frequently, the ratio can always be adjusted later

5. Action Plan

  • August 7 - August 14: Post proposal on forum for feedback

  • August 14: Discussion on Lido Tokenholder Update Call

  • August 15 - August 24: Revision of the proposal following feedback and a holders’ call

  • August 25: Submit proposal on Snapshot voting (according to Lido voting period)

11 Likes
2

Hey @Kuzmich! Thanks for the proposal!

One thing that stood out to me in the action plan is that the August 15–24 revision phase overlaps with the Snapshot vote itself. Typically, revisions happen before the vote goes live, and the vote starts when the proposal is well-baked. I anticipate a lot of discussions here.

As for the schedule we got, the earliest voting slot is scheduled for August 18, but it might shift. This doesn’t block your Snapshot from going live earlier, though, just so you know.

Ready to assist with any part of the governance flow, ping me wherever’s convenient for you!

7 Likes
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Oh, so the brilliant idea that was a terrible one 16 months ago is suddenly a good idea now? Fascinating. What changed—basic math or just the vibes? If it was so wise, why didn’t we pull the trigger back then?

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Activate Lido Protocol Governance with Revenue Share Staking - #2 by Hasu

4

Very welcoming proposal just want to understand if the buybacks will happen from the NEW liquid assets the DAO accrues?

Or the DAO will use part of the current stack of $145M USD?

If just from the new, then the $85m treasury threshold isn’t needed?

2 Likes
5

The idea was to ensure that DAO spending reductions happen gradually, and with the 70/30 scheme, the current treasury ($145m) would gradually decrease.
However, we’re open to discussing different approaches — both here on the forum and during the call on August 14.
I’m ready to consider any ideas

1 Like
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Thanks for noticing - it was just a mistake in one number,
I fixed it
If we manage to finalize the proposal a little earlier, then I can put it up for voting from the 18th.

1 Like
7

Appreciate the work on this, but I have some concerns :thinking:

I really appreciete the thought and detail you’ve put into this proposal. It’s definitley a step in the right direction when it comes to finding ways for the DAO to deliver more direct value to LDO holders.

A dynamic buyback program could help boost confidence in the token and send a strong signal to the market. That said, I’m not fully convinced this exact approach is the best path forward.

Potential for Volatility

Buybacks tied to treasury balance thresholds can cause the market to guess and front‑run when buybacks will start or stop. This can lead to “cliff” moments where price and liquidity swing sharply around those trigger points, especially in low‑liquidity enviroments. Instead of smoothing price action, it might create cyclical surges and drops driven more by speculation than organic demand.

Weak Link to Protocol Fundamentals

While buybacks reduce supply (which can lift price), they don’t directly tie LDO’s value to the actual success of Lido’s core business - staking ETH and earning fees.

Treasury size can fluctuate for reasons unrelated to performance - for example: changes in ETH market price affecting the value of stETH holdings, temporary deviations in the stETH/ETH peg, or planned DAO spending like grants, contributor payments, or investments. That means buyback triggers might not reflect the real operational health of the protocol, and could decouple LDO’s price from Lido’s actual growth.

Alternative: LDO Staking with Fee Sharing

Instead of (or alongside) buybacks, we could explore LDO staking where a dynamic % of protocol fees is distributed to staked LDO holders. The % could be based on multiple factors, including the state of the treasury.

Potential benefits:

  • Direct alignment with Ethereum staking success: more ETH staked via Lido = more fees = higher rewards.

  • Treasury‑light approach: rewards come from ongoing income, not from reserves.

  • Market‑responsive: rewards naturally scale down in slower markets and up in bullish periods.

  • Encourages long‑term holding & governance: holders are incentivised to lock LDO and stay engaged.

A buyback program can provide a quick confidence boost, but it’s episodic and potentially volatile. A fee‑sharing model ties value directly to protocol fundamentals, is self‑sustaining, and rewards long‑term community members consistently.

I’d love to see discussion on whether a hybrid approach (moderate buybacks + fee sharing) could give us the best of both worlds: near‑term market support and long‑term sustainability.

What do you think?

  • Dynamic Buybacks
  • Dynamic Percentage of Fees
  • Both
  • None
0 voters
8

Strictly speaking, you’re right, nothing has fundamentally changed, and Hasu’s statement still seems accurate to me.
Just in case, I’ll leave the link to that explanation here, since it still holds true

4 Likes
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I believe Hasu’s core argument still holds true: many advocate for initiating buybacks to boost token prices, but such effects are typically short-lived. For a protocol to create lasting value, it must first achieve consistent profitability and ensure it can sustainably fund its ongoing and future obligations — including operations, liquidity provisioning, R&D, lobbying, and other strategic initiatives.

The financials speak for themselves. Steakhouse has done an outstanding job providing transparent, real-time access to this data, allowing everyone to assess the protocol’s fiscal health with clarity.

Lido is currently operating near breakeven — a noteworthy achievement given its direct dependence on ETH’s market price.

But $ETH has performed exceptionally well lately, and consensus expectations point to continued strength. To illustrate the potential impact of $ETH appreciation on Lido’s financials, here’s a simple scenario analysis based on current projected expenses and assuming no growth in staking volumes:

  • ETH at $7,500 → ≈ $47M in net earnings

  • ETH at $12,500 → ≈ $120M

  • ETH at $17,500 → ≈ $194M

The takeaway is clear: Lido’s profitability is highly sensitive to ETH’s price trajectory, as the protocol’s revenues are denominated in ETH.

That being said, I believe there should be a transparent, rule-based framework for initiating token buybacks — similar to Ethena’s approach. Such a program could be triggered only when all of the following conditions are met:

  1. ETH 90-day moving average (90MA) > $5,000

  2. Lido’s last 3 months are profitable, with cumulative net earnings > $10M

  3. Positive market share growth over the last 3 months

PS: The timeframes and figures are for illustration only, and I have no strong preference regarding their final form.

This would ensure buybacks are executed from a position of financial strength, aligned with market momentum, and supported by sustainable operational performance.

8 Likes
10

Thank you for the proposal!

As noted above, one of the main thing is — the proposal as-is doesn’t account for the spend to support the Lido on Ethereum liquid staking protocol at all, and the way operations work in this regard won’t show you the deltas. Tokens to be used under EGGs are withdrawn at-request (read: the budget requested at the start of the year is withdrawn month-over-month), so naturally you need to rely on dynamic analysis (and the “the delta the DAO hadn’t committed to EGGs yet” is way below $100m+ you’re mentioning).

I’m afraid that at the current state the proposal isn’t implementable, as it lacks a lot of specifics required to get to this stage.

As a personal opinion — I agree with folks above that Hasu’s argument of not doing revenue based buybacks still holds 100%.

7 Likes
11

What is clear that for a long time token holders asks were ignored and rejected by core team while ldo/eth (and market share) is in down only mode compared to others in the defi sectors (aave for example).
It would be great to not only critic token related proposals but to provide an alternative coming from core team.

3 Likes
12

I am including this proposal for discussion in the Lido Tokenholder Update Call. I was planning to touch this direction, so community push is a welcome addition. It’s going to happen next Thrusday 14:00 UTC. @Kuzmich would appreciate if you would be present.

It matter much less what I think than what token holders think, but I will provide my arguments here.

  1. I think the direction makes sense

  2. there’s a number of mechanisms for automatic/manual/semi-automatic LDO purchases that can be implemented (as e.g. the list you provided shows).

  3. We’re looking to be single digits weeks away from a major improvement in regulatory clarity on value accrual, so I’d hold any long-term decision making until it’s in.

In light of all that accelerated timeline for voting in something this huge w/o discussion and comparison seems rash to me. That said, again, treasury is under complete control of LDO tokenholders, and Lido Labs and other BORGs are funded solely from this treasury.

12 Likes
13

Thanks for you mindful questions and suggestions

Yes, I’ve considered this option, and there are some standard approaches used by other protocols (a recent example is CrossCurve, although in their case they’re selling their own tokens) — such as executing buybacks through a market maker.
Another option is to do it via OTC deals, but that approach tends to be less transparent for the community

Thank you for the question — it’s actually quite complex when it comes to defining what “success” means for Lido.
If success is measured by how much revenue has come into the treasury (i.e., how much the protocol has earned), then the alignment is clear. If we’re using other criteria, the results may differ — but in most financial contexts, profitability tends to be the primary metric of success

Staking has already been proposed lately, and I’ve reviewed that idea. Here are a few downsides I see:

  • It’s more complex to implement compared to a buyback.
    You’d need to develop contracts, conduct audits, and resolve questions like whether staked LDO would participate in governance — and there are many such questions

  • Calculating yield is difficult (and I’ve intentionally avoided using that method for this reason).
    In past discussions, there were multiple proposals and models, but the expected yield from staking turned out to be relatively modest

My proposal is about simplicity and transparency for token holders

1 Like
14

Thanks for you arguments

One of the core challenges/or advantages of crypto - is that development never really ends.

There will almost always be a reason to say we’re still in a growth or stabilization phase. But this doesn’t provide any real benefit to token holders, who can keep being promised future profits—profits that not everyone may live to see

Apologies, but I don’t quite understand how these profit calculations were made.

I do agree that Lido’s revenue depends on the price of ETH, since Lido takes a 5% cut of the total validator rewards. However, revenue also depends on the amount of ETH those validators attract—so even at the same ETH price, the protocol’s income could vary significantly depending on the ETH volume

15

I agree that this post is on point.
That’s exactly why I’m proposing buybacks not from protocol profit, but from treasury surplus.

I (and possibly no one here) have a clear understanding of where the protocol’s expenses are actually going.

  • Liquidity expenses – is there any detailed breakdown of these costs?
    I reviewed several liquidity venues and I don’t see any active LP incentives provided by Lido.
  • Operating expenses – this is also unclear. The numbers fluctuate significantly, from $1.5M to $6M per month.

As long as the community doesn’t have specific and transparent data,
we’re just left accepting high expenses as a given.
And if we never ask questions, they’ll likely remain high.

I believe it’s time we start thinking seriously about the protocol’s efficiency

16

After reviewing the arguments and the proposal itself, we are inclined to support it.
The main arguments for me are:

:play_button: The token has no utility beyond governance.
:play_button: Holders receive absolutely nothing — only losses from the token’s price decline. And yet they are the ones making decisions through voting. I believe it’s time to consider them as well.
:play_button: A buyback could raise important questions about the protocol’s efficiency and financial transparency.

We believe the protocol would benefit from this, money shouldn’t just sit in the treasury — they should be put to work
But if we turn out to be wrong, the proposed threshold would still provide the protocol with a strong financial buffer to continue its operations.

1 Like
17

As I mentioned above, Hasu only provides the final figures for expenses, without describing them or evaluating how effective those expenses are.

We don’t see detailed data on what the funds were actually spent on — just the amounts. It’s worth considering how to reduce these costs, and a buyback might encourage the team to move in that direction

2 Likes
18

A buyback without a burn misaligns the interests of LDO tokenholders and the DAO.

If the DAO buys back LDO and holds it in the treasury for “strategic use,” its only real options are to:

  • Sell the LDO in the future, which would put downward pressure on the token price, or

  • Use it for token incentives, which would likely be sold by mercenary capital, again pushing the price down.

In either case, these actions go directly against the interests of LDO holders. They also create long-term uncertainty, since any large LDO balance held in the treasury could be sold at any time.

1 Like
19

Personally I don’t think it makes a lot of sense to buy back LDO in the middle of a bull market that will benefit ETH probably more than any other asset. I’m not against it in general, although I think some sort of staking mechanism is better than a blanket buyback (for a variety of reasons, to name a few: to increase participation in governance, to tie it to token utility and create mechanisms that augment the protocol (it’s true it becomes more complex to reason about and takes time to develop, but that’s not necessarily a bad thing, though I know DAO participants are split on this), and to reward activate participation (of various kinds) a bit more than passive participation).

Going back to my main point, IMO now is the time to accumulate ETH, and the Lido protocol is a really great way for Lido DAO to do that. At the end of the day, LDO allows LDO holders to vote what to do with the treasury, but I think the best thing to do right now is to empower contributors and the protocol do things that accumulate the most ETH. That’s why it makes sense to continue to spend (less than has been historically) on supporting the protocol, finishing out the stVaults products, and identifying where there’s room to improve the “ETH accumulator” engine.

I agree we should consider extensively which mechanisms make sense and best suit a protocol like Lido, but I don’t think this proposal is anywhere near the level of maturity needed to go to a full vote.

4 Likes
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Thank you for highlighting this issue — I’ve been thinking about it as well.

On the one hand, the risks you mentioned do exist, but:

  1. The DAO cannot sell or spend funds without a community-wide decision.
    Therefore, if such a sale or use of funds would harm tokenholders, the decision simply won’t pass.

  2. I don’t agree that the DAO is limited to only those options — the option to burn tokens is not ruled out by this proposal.
    If the community votes in favor of it, that’s what will happen.

Feel free to suggest what % should be burned, and I can include that option in the proposal