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
- Recap
1.1 GOOSE-1 and ReGOOSE
1.2 Achievements - 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 - The path forward
3.1 From Product to Product Line
3.2 A Market for Validators
3.3 LDO: More than Governance - 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
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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).
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Dual Governance launched on testnet.
Best validator set in the market
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Validator set expanded from 37 to over 400 node operators, with half being solo stakers enabled by CSM & SDVT modules.
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Permissionless validation introduced.
stETH most used token in the ecosystem
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Progress toward becoming #1 collateral in staking, including launching Aave isolated instance for looping LRTs with wstETH and positioning for preconfirmations when they launch
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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 (currently in testnet), 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:
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Aligning risk/reward between more and less risky modules
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Aligning node operator rewards more effectively with their contributions
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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:
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A deeply embedded culture of security and alignment with Ethereum
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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
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Maximizing the network effect and liquidity of stETH
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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.