[Hasu's GOOSE-2 Submission] A Product Line Approach to Grow Lido’s Staking Ecosystem

[Hasu]

This post is in response to the second GOOSE cycle (hereafter called GOOSE-2). The process allows the Lido DAO to agree on the next period’s top 1-3 goals. These goals should cover the “what,” while the “how” is for contributor teams to determine.

TLDR:

• Expand stETH’s Ecosystem with a Diverse Product Line to meet the diverse needs of Ethereum stakers and reignite growth.
• Establish an open market for validators to align validator rewards with contributions against Lido’s mission.
• Strengthen LDO’s role in governance by aligning incentives with Lido’s long-term success, promoting stability and sustainability for the protocol.

Contents

1. Recap
   1.1 GOOSE-1 and ReGOOSE
   1.2 Achievements
2. Key Challenges
   2.1 Saturation of the LST category
   2.2. Centralization Risk of Institutional Inflows and Staking ETFs
   2.3 Risk of Ethereum Issuance Reduction
3. The path forward
   3.1 From Product to Product Line
   3.2 A Market for Validators
   3.3 LDO: More than Governance
4. Closing Words

Recap

GOOSE-1 and ReGOOSE

In the original GOOSE (10/2023), we set out to position Lido as the safest returns in the Ethereum ecosystem by focusing on decentralized governance, a diverse node operator (NO) set, and deep integrations to grow stETH’s network effect. We believed that liquid staking would become dominant over time.

In 05/2024, the ReGOOSE updated these goals in response to the evolving environment, particularly regarding restaking and the Ethereum issuance debate.

The vote reaffirmed that stETH should remain an LST and continue to offer the safest returns rather than pivoting to an LRT. Instead, stETH should become the top collateral in the restaking market, allowing stakers to opt into restaking opportunities selectively. Research showed that preconfirmations could eventually be integrated by NOs, providing another avenue for growth.

Achievements

Since ReGOOSE, significant progress has been made across all three major swim lanes:

Effective, decentralized governance

• Simple Delegation led to 30m LDO delegated, with 11M new LDO activated for governance and no missed quorums since. Vote participation increased to 65m on average in Q3 (up from 51m in Q2).

• Dual Governance to launch on testnet soon.

Best validator set in the market

• Validator set expanded from 37 to over 400 node operators, with half being solo stakers enabled by CSM & SDVT modules.

• Permissionless validation introduced.

stETH most used token in the ecosystem

• Progress toward becoming #1 collateral in staking, including launching Aave isolated instance for looping LRTs with wstETH and positioning for preconfirmations when they launch

• 0 security incidents, maintaining trust.

Key challenges

Saturation of the LST Category

Over the last year, the share of ETH staked using Lido’s middleware has gradually declined from 32% to 27.8% of all staked ETH, reflecting the growing saturation of the LST sector. During this period, over 1M new ETH (TVL) was staked through Lido’s smart contracts, but its percentage share declined nonetheless, as the sector overall grew by 8M ETH simultaneously.

The rise of the LRT category in this story has been discussed in reGOOSE, and its growth has likely peaked.

Lido’s usage within the LST category remains dominant and strong at around 90%, but its share of the broader category has declined from a peak of 37% to 31%. Even when considering both LST and LRT (“all liquid”), the category size is roughly unchanged compared to 2.5 years ago.

stETH’s liquidity moat has declined since Beacon Chain withdrawals became possible, and the collapse of FTX has further limited major CEX support for stETH, impacting its liquidity. Bybit, OKX, and Deribit have since added stETH with small collateral ratios, but Coinbase and Binance have yet to list stETH, likely to prioritize their own staking offerings.

Moreover, one year ago, every staking solution offered the same Ethereum rewards + MEV. Today, bespoke forms of reward, such as inorganic points, have taken over. Staking has become “chasing the hot ball of rewards,” leading more users to manage their stake more actively.

Finally, the influx of more institutional users such as HNWIs, ETP/ETF providers, or neo banks has brought customers with yet different and often more bespoke demands of their staking provider currently underserved by vanilla stETH.

In summary, the thesis that one LST would dominate has not materialized due to increasingly varied user needs. Lido must evolve to address this shifting environment.

Centralization Risk of Institutional Inflows and Staking ETFs

Institutional inflows, such as the ones through Staking ETFs, are equally risk and opportunity.

Centralized providers, especially with a custodian business line, are well positioned to try and capture this inflow early, even at the expense of increased counterparty risk for the issuer and significantly curtailed validator decentralization at the network level.

stETH is well positioned to become the solution of choice for ETF issuers, given its liquidity and diversified exposure to node operators. As an asset, it passes many of the same tests that ETH cleared when being considered as part of an ETF product and trades in deep markets with high correlation to ETH and ETH futures at CME.

However, ensuring broad adoption of stETH will require focused advocacy and collaboration to overcome potential headwinds from other staking providers.

We must ensure that institutional capital inflows contribute to Ethereum validator decentralization.

Risk of Ethereum Issuance Reduction

Some community members believe Ethereum already has more stakers than needed and that the marginal utility of adding more stakers has become negative. The argument is that excessive staking creates network overhead, reduces Ethereum’s monetary premium, and potentially introduces security risks.

The debate has two sides: (1) reduce staking by altering issuance incentives or (2) embrace staking and make delegated staking as trustless as possible.

If issuance is reduced, competition on price would intensify, particularly impacting higher-cost producers like solo stakers and decentralized staking pools. This would necessitate an even more efficient staking model for stETH to remain the token of choice.

The path forward

From Product to Product Line

Over the last year, Lido contributors have made significant strides in improving security and decentralization, delivering the software for DVT and CSM modules, Simple Delegation, Dual Governance, and more. With these foundations in place, the Lido protocol must evolve to stay relevant in the maturing and diversifying field of staking.

It’s time to pivot from a single-product focus to a product line strategy, driving stETH adoption through innovative, differentiated staking products.

The LST category is becoming saturated. To regain share, Lido must transition from offering stETH as a singular product to developing a broader product line within the staking ecosystem. This involves creating a suite of interconnected products that cater to diverse needs and preferences within a cohesive framework.

While more analysis is needed to identify the optimal beachhead markets, there are at least three promising categories currently underserved by stETH:

• Institutional stakers: Require tailored solutions to meet specific technical, legal, compliance, and insurance requirements.
• Restakers: Seek greater risk/reward opportunities by restaking their ETH and/or engaging in points farming.
• Leverage-seekers: Desire the cheapest possible leverage while minimizing liquidation risk.

The success of this transition to a product line strategy depends on leveraging shared infrastructure across different products. By building a suite of staking products with stETH as a foundation, we can create a versatile ecosystem that meets diverse market segments without compromising liquidity or brand identity.

A Market for Validators

I propose creating an open market for validators within Lido, allowing for differentiated offerings and a more flexible fee structure reflecting each validator’s risk and decentralization contribution.

With the addition of SDVT and CSM, Lido has evolved from a single curated module to having three modules connected by the Staking Router. This expansion not only enhances decentralization but also introduces different fee structures for node operators (6% for CSM and 8% for SDVT), offering more flexibility.

This approach is based on two key insights: (1) not every node operator has the same marginal cost of production, and (2) not every node operator provides the same value to Lido stakers and Ethereum. For instance, NOs with more decentralized setups may be more costly to operate but provide greater value to the network.

If Lido protocol is upgraded to add a product line around staking, a third insight may be added: (3) since staking risk within Lido is socialized, some modules inherently carry higher risk than others.

These three insights lead to a clear conclusion: Lido should programmatically reward node operators differently based on their specific contributions and classification. This concept was already mentioned in the 3-year goals as “risk mitigation by design” and a “free market for validation.”

A well-designed staking market would drive efficiency, fairness, and resilience within the ecosystem by achieving the following:

• Aligning risk/reward between more and less risky modules

• Aligning node operator rewards more effectively with their contributions

• Increasing Lido treasury’s ability to provide operational grants, especially if issuance is reduced

A flexible validation market allows Lido to reward node operators based on risk, cost efficiency, and their value to Ethereum’s decentralization, thus aligning operator incentives with Lido’s mission.

LDO: More than Governance

Since its inception, Lido’s smart contracts and treasury have been entirely controlled by LDO holders. While this makes Lido DAO one of the most decentralized DAOs, it also makes governance attacks a significant threat.

With Simple Delegation assigning 30M LDO to delegates and increasing average vote participation by 15M, and with Dual Governance soon giving veto-like powers to stakers, Lido has taken substantial steps to mitigate governance risks. Despite these efforts, LDO will continue to play a central role in the Lido ecosystem.

LDO secures and directs the Lido protocol and its key resources. Therefore, it is crucial to (1) attract the right individuals to become LDO holders and (2) ensure that these holders are strongly aligned with the long-term mission and success of the Lido protocol.

Starting this discussion is timely for two reasons: (1) the regulatory environment may be improving, reducing the risk of token-related changes (subject to further analysis), and (2) a rising ETH price could make the Lido protocol profitable for the first time.

While activating a “fee switch” isn’t immediately necessary, establishing a framework now would improve the predictability of future cash flows and strengthen governance alignment.

By tying LDO more directly to protocol revenue, we can attract committed, long-term holders who are invested in Lido’s growth and success.

Closing words

Lido contributors have always prided themselves on having a clear mission and staying committed to long-term plans, even in a distracting and often hype-driven environment. Our mission is to make staking simple, secure, and decentralized.

GOOSE-2 proposes an ambitious new path forward, but many core values will remain unchanged:

• A deeply embedded culture of security and alignment with Ethereum

• Continued investment in decentralization, especially by completing key projects like DG and expanding CSM + DVT, while staying flexible to adjust budgets if issuance is cut

• Maximizing the network effect and liquidity of stETH

• Focusing on the institutional market as a major opportunity

What has evolved is our understanding that a single, uniform staking product is no longer sufficient to meet the needs of a diverse user base.

We, the Lido community and contributors, must embrace this transition to solidify Lido’s place as the leading staking provider. Let’s develop products that serve a broad spectrum of stakers, build a validator marketplace, and align LDO holders with Lido’s long-term mission. Together, we can make 2025 a transformative year for both Lido and Ethereum.

[zk1t]

Thanks for making this proposal, it’s a great step in the right direction.

With regard to new product lines, is there any possibility of Lido stepping outside the comfort zone of focusing specifically on stETH?

For example:

1. Ecosystem expansion and targeting LST products on other chains?
2. Moving upstream to capture value by implementing Lido’s own version of something like an EigenLayer or a Pendle - e.g. products that heavily rely on stETH where Lido could capture additional value rather than leaking it to other protocols?

[Totally2]

@Hasu

Institutional stakers: Require tailored solutions to meet specific technical, legal, compliance, and insurance requirements.

Thanks Hasu, great proposal: Understanding that both the regulatory landscape is evolving and institutional obligations are not uniform, do you have any insights into what meeting these institutional needs looks like in practice? Is there an implementation that maintains the liquidity/fungibility properties of stETH while meetings these needs?

[18519865qwe]

The team lives too comfortably. They have a lot of cash in their hands and receive high salaries every month without any sense of crisis. sol.matic.dot.atom. The pledge of these chains failed in advance. Shouldn’t the team reflect on this?
LDO
Tokens should also be empowered long ago. They should pay dividends like stocks, or be destroyed like BNB. Otherwise, what will a governance token do to you? It is enough to have STETH as the governance token. The team might as well not issue coins?

[Hasu]

When I say, “New products should use stETH as the foundation,” it has less to do with staying in our comfort zone and more with building on our “unfair advantage.”

Going to other ecosystems
That’s why I would not go to any other ecosystems. Not only are the conditions usually not optimal to make an LST successful, and the waters are swimming with competition, but Lido has very little of this unfair advantage against them. You could even argue that Lido would be disadvantaged because new projects start with a bloated valuation and outspend Lido on token-based incentives.

Scaling vertically
As to horizontal vs vertical scaling, it’s becoming increasingly clear to me that the LST category is becoming saturated, and hence, Lido has little room to grow.

Moving upstream in our vertical is possible, but I am convinced that scaling horizontally to other verticals is better. With going upstream, what would convince me is a) Lido can produce something with much better UX that increases downstream demand for stETH, and b) Lido can reduce a key dependency and/or capture much additional value.

I don’t see it for a) at all, and b) it is truer but debatable. Restaking has likely peaked now, and with Symbiotic, a new player is launching soon to reduce the power of Eigenlayer in that layer. Aave is the big gorilla in the credit layer, but our protocols have a good relationship, and the Lido isolated market on Aave is shaping to be a great collaboration. No one seems to be extracting excessive rent from Lido stakers right now.

These things might change, and then we should change our minds, and it’s good to think through what that might look like in advance. So, I appreciate the question.

Scaling horizontally
Horizontal scaling, on the other hand, looks like a better option to me. There are clear user segments in staking that are not currently served well by stETH because they want better access to leverage, better access to restaking/points, or more customization around their node operator setup.

What matters here for this to be a good strategy is whether Lido contributors/researchers can find a way to offer these products while reusing as much as possible from Lido’s existing infrastructure and stETH’s network effect and liquidity moat. Some early thinking on how that could look in my other response.

Finally, when a horizontal scaling strategy can work, it usually leads to better financial outcomes for the DAO because the same fixed-cost infrastructure can be reused across a larger base of users.

[Hasu]

I may not be the best person to answer this, but in the original GOOSE-1, bring-your-own-validator (BYOV) modules were already mentioned as a promising path. The idea is to make modules a lot more granular than they are today. At the limit, you may have one module per BYOV staker, and this staker can decide who that module’s node operator is.

Having a non-Lido node operator raises new challenges around MEV stealing, performance, risk management, and more. Still, these challenges are not too dissimilar from those Lido contributors face in permissionless CSM modules. It is a theory that such a design can be further generalized to cover verticals like restaking as well.

[Hasu]

@18519865qwe

Tokens should also be empowered long ago. They should pay dividends like stocks, or be destroyed like BNB. Otherwise, what will a governance token do to you? It is enough to have STETH as the governance token. The team might as well not issue coins?

This discussion has been had many times in the forum, so I would encourage you to dig into some older threads. But the gist is that LDO is needed to secure Lido governance, which itself votes on key parameters and the upgradeability of the smart contracts.

I agree that an economic link between LDO and protocol success must be established at some point. If the token becomes unattractive for rational community members to hold, the governance can become insecure, putting the whole protocol at risk. My proposal directly addresses this, and 2025 would be a good time to further explore this subject as a community.

[zk1t]

I see your points but I respectfully disagree, yes we should probably spend a lot of time and effort scaling horizontally but we should also think about ecosystem expansion and vertical scaling. I am of the belief that verticalization will ultimately be how you actually extract fees because at any point in time, whoever captures the end user will be able to create their own versions of lending, dexes, staking, etc. - just look at exchanges and how much money they are making. They don’t just offer trading, they started with that but now it’s pretty much go to them and get whatever you want - trading, staking, yield strategies, launchpads, wallets, they even have their own chains now.

1. Ecosystem expansion: Yes there is more competition and yes other protocols can use tokens as a way to attract TVL. However, if Lido becomes profitable we can use real profit to attract TVL and compete with other ecosystem competitors. This is a win win because a) users generally prefer real yield and more importantly b) real yield is significantly more sustainable than emitting tokens. If competitors are forced to emit tokens as a way to maintain TVL then they risk flooding the market with too many tokens and thus crashing their token price, which optically would be bad and could also destroy moral of their community. So if Lido can use profits to subsidize growth in other areas, I’m actually not worried about competition at all, similar to how Amazon uses their profits from cloud to subsidize their marketplace product to outcompete their competitors.

2. stETH product: I also disagree, there may not seem like a big demand today but there’s evidence that for a product like Pendle there are literally billions of dollars worth of these types of products in traditional finance that are based off of treasuries, and I don’t see why if Ethereum succeeds, the same won’t happen with staked ETH and why lido should preclude itself from being a part of creating those products. Also since lido owns the smart contracts to stETH there are likely ways to create the product that make it safer for users vs. another protocol building on top of stETH. Plus, a lot of the code is already out there and open sourced for building this so it’s not like you need to invest the same amount of money/effort to do it, you just need to be a follower and wait for the leaders to pave the way - e.g. most dexes and uniswap strategy, with the main difference here being that lido and stETH are actually the market leader and own most of the stETH liquid market

[18519865qwe]

Bitwise, the issuer of Ethereum ETF, acquired Attestant, a specialized ETH staking service company. It is most likely preparing for the upcoming ETH ETF staking in advance. Currently, ETH There is almost no doubt that ETFs that allow staking will continue to be implemented after Trump’s new policy. The 350 million U.S. dollars of ETH currently managed by Bitwise will earn an annual staking income of 12 million U.S. dollars at an APR of 3.7%, while its current fund management is 0.2%. The fee rate can only earn US$700,000, so these ETH ETF issuers will definitely work hard to promote staking.

[18519865qwe]

Most importantly, you are too slow to expand staking to other chains. If you had heavily subsidized sol staking back then, you would definitely see good performance now. Therefore, if you want traditional ETF pledgers to accept lido, you must sell part of lido shares as soon as possible and empower lido tokens! If I were a part of your team, I believe I could do better because you never pay attention to the community and don’t know what the community wants.

[zk1t]

yeah I’m pretty sure it’s going to be incredibly difficult to get someone like a blackrock to stake their ETF with Lido and stETH (I could be wrong) but it feels like why wouldn’t they just use Coinbase’s staking service or the staking service of whoever they are custodied with?

Is lido even talking to these large ETF providers about staking ETH through stETH? Because if we aren’t, we probably should have started these conversations last year.

[polar]

@Hasu

While activating a “fee switch” isn’t immediately necessary, establishing a framework now would improve the predictability of future cash flows and strengthen governance alignment.

This is the most intriguing line. It looks like the issue is stalled at Uniswap (discussion here and here) but perhaps someone closer to the story knows more.

[Leuts]

Gm! Thanks for the extensive proposal on GOOSE-2.

Firstly, congrats on the Goose-1 achievements. Wins across the board and a testament to the teams ability to execute.

Regarding Goose-2: I agree that Lido could and should begin to start producing value beyond a uniform staking product while maintaining the same core values and mission. There is undoubtedly space to do so and preparing to do so now makes sense both in relation to the market, regulatory environment, and Lido’s PMF in a potentially stalling segment. Lido might be one of the few teams in the industry that is ready for this kind of move.

I believe that both horizontal and vertical scalability both provide advantages and disadvantages.

Horizontal → larger market opportunity, decreases risk of getting stuck long-term
Vertical → Easier to build and execute with existing team knowledge/experience, decreases forkability, easier to monetize

However, if you fundamentally believe that the LST category is saturated and future growth will be negligible than horizontal scalability might make more sense as you are casting your safety lines outwards. I think the short-term risk is higher, but the potential ROI is much greater.

Regarding the optimal beachheads to horizontally scale:

1. Institutional Stakers: no brainer → easy to use Lido’s trusted brand
2. Restakers: Arguably the most overhyped market in the industry. We have yet to see organic traction and estimated organic APY is extremely low. I don’t see any rush for Lido to move into this vertical until the froth has settled and an intelligent path found forward.
3. Leverage-seekers: Has existed in some form forever and isn’t going anywhere. Seems like low-hanging fruit.

I think careful consideration of HOW you plan to monetize a new horizontol strategy would be important before beginning the endeavour, as I do believe vertical alignment is one of the only ways to monetize in our open source industry.

LDO Fee Switch: Although you aren’t advocating for the fee switch to be turned on immediately. I do find it interesting to be included in this proposal. Wouldn’t directing revenue directly to token holders while simultaneously pivoting to a product line approach be counterproductive? My assumption would be that you would want the maximum resources during the pivot to attack a new vertical?

Although it could attract committed, long-term holders, decreasing some governance risk, there may be other methodologies to do this as well in the short-term that could be explored. I am not against planning however, and do think one day that this would be advantageous.

Looking forward to participating and seeing how this unfolds! This could be a next huge chapter for the Lido DAO and be a transformative year to prepare it for a long and diverse future.

[Ignas]

Thanks for laying out such a detailed roadmap for Lido’s growth next year. I’d like to share a few thoughts:

• You mentioned that:

@Hasu

We must ensure that institutional capital inflows contribute to Ethereum validator decentralization.

• Plus, you said that:

@Hasu

LST category is becoming saturated, and hence, Lido has little room to grow.

A big catalyst for growth are upcoming staked ETH ETFs.

@18519865qwe in the comments mentioned the Bitwise getting staked ETH ETF via acquired Attested to prepare for the launch.

Why can’t that provider for staked ETH be Lido?

Lido has the battle tested technology that could be used for ETFs.

Perhaps the DAO can fund hiring BD team that manages to attract Blackrock and other ETF issuers to collaborate with us?

• On:

@Hasu

This involves creating a suite of interconnected products that cater to diverse needs and preferences within a cohesive framework

Another major area for growth. Symbiotic + Mellow was a big success.

These initiatives that provide better yields opportunities for stETH holders will help grow the TVL.

I would be as brave as to suggest a Lido native stablecoin that competes with Ethena. The Ethena protocol now controls a large supply of stETH but we could work on a more decentralized solution.

Any brave ideas are welcome.

• Open market for validators: As I mentioned in my thread, Ignas Delegate Thread. I’m all for decisions that enhance the decentralization of the protocol. But, if most rewards end up with large validators or those offering lower fees, it could lead to centralization risks in the system.

• Strengthening LDO’s role in governance: I support this because it will increase the long-term value of LDO and attract more holders. Overall, I agree that we need to add more details on “how” to assess the proposals, not just the “what” :). Looking forward to hearing others’ thoughts!

[fiddyresearch]

Hey @Hasu ! Very honest and insightful proposal. I have a few observations and comments that I’d like to share.

1. The stETH product line is quite dependent on the liquidity moat as you so aptly mention. There seems to be scope to develop sustainable liquidity incentivisation strategies to support active (rational) and passive (rational and irrational) liquidity providers. Do you think strategies like the DAO owning a liquid-governance token to direct incentives at a low cost over time makes sense?
2. You mention that Ethereum staking has reached a level of saturation, and its now up to the whims of broader market to raise the tide that lifts all boats. I posit that it users are very comfortable holding WETH or ETH over stETH, principally because it ‘feels’ safer than stETH, which means there’s quite some more market-share to grab if and only if Lido works towards making stETH a no-brainer to hold over ETH. This is probably the cheapest growth strategy over the longer term since it costs nothing to the Protocol if users cannot discern stETH from ETH. So, if the problem statement is stETH does not feel like ETH, one proposed solution could be working towards wallet integrations where ETH is staked on Lido natively, or working on wallets natively as well (perhaps in collaboration with a wallet service provider).
3. Finally, I feel like there is a significant userbase that is being ignored: fixed-income seekers. The points meta has caused a lot of trouble for stETH, but there’s definitely a silver lining in the there somewhere. Pendle was proliferated and we have the likes of Spectra who are also feverishly working towards making yields predictable and tradeable. There’s definitely scope to make a stETH zero-coupon bond via Principal Tokens, and working towards making PTs collateral-worthy, and onboarding it into Aave Lido instances as well. Would that be a strategy to consider.

I speak only on the asset standpoint, since that’s where most of my experience lies. I’ll leave the evaluation of the rest to the others.

[kadmil]

@Ignas

we need to add more details on “how” to assess the proposals, not just the “what”

Note that “goal setting” is not about “how” though, and GOOSE is a goal-setting exercise. “Hows” are getting tackled and handled on project-by-project basis mostly: that’s the reason behind “landscape” proposals (for instance, Community Staking Module: Community Staking Module, Dual Governance: Lido dual governance explainer (research distillation)) and the like.

[kadmil]

@fiddyresearch

Do you think strategies like the DAO owning a liquid-governance token to direct incentives at a low cost over time makes sense?

Lido DAO & reWARDS/LOL committees have long-stopped providing incentives in LDO, focusing on using DAO’s part of stETH rewards fee as the main source (= “stETH is used as incentives”). Managing “protocol-owned liquidity” 1) requires significant effort; 2) carries quite high operational risk. Those are the main reasons why the Treasury Management Committee basically has a policy against such kind of activity.

[kadmil]

@fiddyresearch

I speak only on the asset standpoint

While I’d say those directions look interesting, without the numbers (market size / “median cost of liquidity” / you name it) it’s not actionable. There’s a stream of work towards making StETH the most used LST “where the users are”, which will be continuing =)

[kadmil]

@18519865qwe

If you had heavily subsidized sol staking back then, you would definitely see good performance now

Please, check out the Lido on Polygon discussion here: Reevaluation of Lido on Polygon state. Long story short — building the successful LST is tough and there isn’t a cookie cutter solution; even while some thinking and know-how can be re-applied, the actual networks’ ecosystems vary far greater than one can expect from the outside.

[Cortina]

I am happy to see @Hasu recognizing the need for additional product lines if Lido is to grow over the next few years and I have some suggestions for how new product lines could be added below.

First, our focus on DVT and CSM modules were important and not celebrated nearly enough by the broader Ethereum community for their contribution to Ethereum’s mission/values. With that said, LDO holders should be concerned going forward given the growth opportunities we’ve missed over the last couple of years. Here are a few examples where an optimistic LDO holder from 2021 might have assumed Lido would win market share:

1. Competing L1 LST markets
2. LRT market
3. Native Yield L2 (lido chain)

None of those have come to pass and over the last year or so, it seemed LDO’s inevitable future was similar to an energy utility where the criticality of our role within Ethereum would prevent expansion to new ecosystems and/or the exploration of new verticals. Meanwhile, margin expansion in our existing business would inevitably be constrained both by political pressure and by rights endowed to stETH holders through dual governance. These constraints are real as far as I can tell. The Ethereum community should want LDO holders to be as Ethereum aligned as possible and stETH holders should want the lowest take rate that allows Lido to be sustainable and secure. Without growth prospects, a LDO investor must ask, “why am I holding a token for a project that has no growth prospects and, net operating expenses, earns significantly less ETH per dollar invested compared to simply owning stETH?” And that is without any mention of the uncertainty about whether or not those earnings might ever be distributed to LDO holders. Eventually, as Hasu mentions, this becomes a security risk.

New product lines through 1) internal incubation, 2) venture incubation and 3) acquisition:

1. It is difficult for me to assess whether internal Lido resources previously allocated to other initiatives might be freed up and whether or not those resources are well suited to build new product lines. But it seems unlikely especially considering original founders have moved on.

2. The last few years have offered plenty of learnings about how not to use treasury assets to incentivize product/protocol development within an ecosystem. I strongly discourage using treasury LDO as a direct incentive for entrepreneurs to build new Lido product lines. Fundamentally, new projects are in need of cash to build and have plenty of upside if they are successful. They should be focused exclusively on winning through their own token. In other words, new projects have a very high liquidity preference making them a bad match for token grants, locked or liquid. Instead, if we want to use LDO from our treasury, we should allocate locked tokens to investors that fund new product line projects with cash. Imagine a “Lido Incubated Projects” category on Echo where an investor can contribute USDC and receive an allocation of New Project Token as well as long-term locked Lido. The new project gets cash to build, Lido gets new product lines, and long-term investors get LDO along with their high upside venture bet tokens.

3. We should also consider M&A opportunities where Lido’s brand and treasury assets might help useful but neglected tech overcome the cold start problem. As an example, perhaps we think a useful new product line for Lido is a cross-chain borrow/lend marketplace. Personally, I like the idea of holding my stETH on L1 while borrowing against it on L2’s and alt L1’s for my more speculative activities. It seems other bridging solutions like Across will be disadvantaged by tax implications of their model in most juristictions. Would it make sense to acquire Synonym Finance (current FDV 3M) instead of building it ourselves?