LDO+stETH dual governance

Proposals
46

Thank you Eugene, I really like the general idea!

I can think of the following specific changes to the mechanism described in the initial post:

  1. There is an explicit voting for applying a global veto state. The voting starts when more than a certain percentage of the total stETH supply is locked in support of the veto.

  2. After the global veto voting is started, one can also lock stETH in opposition to the global veto.

  3. The voting lasts for a fixed amount of time enough for most stETH holders to react. If it’s successful, the global veto state is applied, and withdrawal of all stETH locked in support of the veto is initiated.

  4. Global veto state is active until the aforementioned withdrawal is complete, plus some decent amount of time (e.g. several weeks) sufficient for the latecomers to initiatе withdrawals via the standard mechanism.

  5. If withdrawals are not yet implemented, the veto state is active until the upgrade implementing them is applied (which would require lifting the veto from the specific vote via anti-veto voting).

  6. Anyone who locked stETH (both in support of and in opposition to the global veto) possesses veto voting power effective in anti-veto votings for specific DAO governance decisions.

  7. No stETH is burnt as the result of anti-veto votings for specific DAO decisions. Instead, burning or partial burning could be optionally implemented for stETH used in the global veto voting.

I believe these changes improve the overall incentives, simplify the design, and solve the problem of governance unblocking: by the time veto is lifted, anyone in disagreement with the LDO holders’ decisions has already left the protocol.

That said, I see one issue with this approach: since veto implies stETH withdrawal, any potential disagreement between LDO and stETH holders will cause a massive validator exit queue—and, as a result, a noticeable reduction of the total amount of stake securing the blockchain. This is bad for the network, though it seems that massive stETH withdrawal is anyway inevitable in the case of LDO holders approving a decision directed against the interests of stETH holders.

I’ll prepare a new version of the mechanism description incorporating these ideas. Will try posting it here before the end of the week.

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