Lido Alliance: An Ethereum-Aligned Ecosystem

“Like romances, alliances are built on hopes and dreams—what might happen if certain opportunities are pursued.”–Rosabeth Moss Kanter (HBR, 1994)

Outline

Wishlist: Grow a permissionless, decentralized restaking ecosystem
Growing an Ethereum-aligned ecosystem around stETH helps decentralize the network
How should Lido DAO help support the growth of the ecosystem around it?
Navigating the Lido Alliance
Lido Alliance Principles
Conflict resolution
Onboarding process
Proposal actions
Template for Lido Alliance Workgroup Review

Wishlist: Grow a permissionless, decentralized restaking ecosystem

Hasu recently outlined some updated strategic priorities in light of, among other things, the rapid emergence of the restaking market. To answer part of his call, we propose the below framework as a way of supporting the emergence of an ecosystem around stETH, while keeping the protocol the same.

While our Alliance framework proposal is theoretically open to any new protocol, we wrote it with restaking in mind, and have three points to our ‘wishlist’, as an open call to the community:

  1. Permissionless LRTs, i.e. services that curate AVS’ but allow users to delegate ETH in a trustless and multisig-less way (similar to yearn strategies or MetaMorpho vaults)
  2. Pre-confirmation services and other AVS protocols that are Ethereum-aligned and can help make the network stronger.

Any of the above are invited to contact the Alliance Workgroup (details to come, should the proposal pass) to explore the Alliance and begin the governance process for endorsement. Of course, the framework is generalist and other protocols that share the same aim are equally invited to participate.

nb.: As part of our ‘not-wished-for’ list are protocols, fund managers or entities that seek Alliance endorsement with the aim to ‘manage’ the Lido DAO treasury, or surplus. Ultimately, DAO token holders are free to vote as they see fit for such proposals, should they emerge from the below process. It is worth reiterating that DAO token holders have already approved minimalistic Treasury Management Principles to this effect, with the express purpose to remove or automate decision-making from the DAO treasury.

Growing an Ethereum-aligned ecosystem around stETH helps decentralize the network

We think of Lido stETH as a triangle connecting node operators, stETH holders and LDO token holders through Lido stETH software. This software runs autonomously and is designed to align cryptoeconomic incentives to further the purpose of decentralizing Ethereum validation. stETH is a mission-driven software tool with a proven track-record of decentralizing the network of Ethereum validators through 1) permissionless software and 2) market forces (cf. HHI graph below, source: Grandjean, Heimbach, Wattenhofer).

Growing the ecosystem around the above mentioned three participants is a powerful way of accelerating Ethereum decentralization. The more attractive it is to use stETH as collateral, the more the ecosystem grows. This makes it more appealing to participate as a node operator. In turn, and in particular with the possibility for solo-stakers to join through DVT or Community Staking, this increases the decentralization of Ethereum validation.

How should Lido DAO help support the growth of the ecosystem around it?

Lido DAO has experimented with supporting new protocols in the past through Lido on X. However, the execution led to unstructured frameworks for incentivizing growth and partnerships with protocols where the alignment with Ethereum was unclear. As a consequence, DAO token holders have voted to pull back on virtually all of the Lido on X programs to focus on Ethereum.

LEGO, on the other hand, is an example of a tool that has worked extremely well at supporting the ecosystem growing around this triangle. In April 2022, Lido DAO token holders approved a 2m LDO grant to the Ethereum Protocol Guild to support the development of the Ethereum network. Many other grants have been deployed to support Lido protocol security, security audits for novel protocols looking to integrate wstETH into their own ecosystems and more. LEGO has, and should continue to have, a role in curating targeted ecosystem grants.

We would like to propose a new, systematic framework for the DAO to signal its support of Ethereum-aligned and security-obsessed protocols and teams. The intent is not to disburse grants, as with LEGO, but to provide an umbrella framework for endorsement and partnership instead. It is designed to remain decentralized and guided by LDO token holders.

Navigating the Lido Alliance

Lido Alliance is a framework for Lido DAO to offer support and endorsement for protocols with the same obsessive focus on security and a no-holds barred commitment to decentralizing Ethereum validation. It is a governance process for Lido DAO to identify and recognize projects that share the same values and mission, and have a way to positively contribute to the stETH ecosystem.

The proposal asks for creation of a dedicated Alliance workgroup of Lido Contributors. The group’s purpose is to assess potential new Alliance members, facilitate & guide them in the DAO’s governance process, as well as help with navigating the potential alignment & product development possibilities. For any Alliance application, the workgroup would be expected to weigh in with assessment results as a note for tokenholders and the wider community. The other two workgroup objectives are

  1. Be the first point of contact for Alliance members on an ongoing basis
  2. Signal the community and propose offboarding Alliance members in case of misbehavior in regards to stETH or Ethereum alignment

LDO token holders will always be consulted and have a say in the matter by way of a vote whenever there is a major event impacting the operation of the Alliance like any decision to onboard, offboard, or make any changes to the partnership. Such votes would ensure the Alliance Workgroup stays on track in terms of mission and vision alignment and make sure the Allied Partners’ values align closely with the values and ethos of Lido DAO.

While being an ongoing effort, one can expect the Alliance workgroup to facilitate onboarding batches aligned with regular voting cadence. The actual timing is left to the workgroup’s discretion. Token holders can expect evaluation and recommendation based on prospective Partner’s values alignment, focus and commitment to security and unique and promising ways the partnership can benefit the stETH ecosystem.

Closer affiliation with Lido DAO and the participants in the stETH Triangle can help spread awareness both for stETH and for Allied Partners and their unique technological solutions, which in turn furthers the decentralization of Ethereum.

As part of a proposal and where relevant, Partners have the option to offer a token airdrop to the Alliance. Those tokens would be committed to the Alliance in perpetuity. Any action towards airdropped tokens would have to be vetted by both Alliance Workgroup and the Lido DAO.

Lido Alliance Principles

  • Partners should:
    • Share philosophy alignment: Align with Lido DAO’s vibes, centered around the purpose of preserving Ethereum’s decentralization, accessibility and resistance to censorship.
    • Focus on integrations: Tailor product integrations for the Lido protocol to enhance the project’s value proposition, expand market reach and foster synergistic growth opportunities.
    • Have an Obsessive Security Culture: Uncompromising, relentless approach to security for users
  • Partners should not:
    • Misrepresent the Alliance: Partners must avoid misleading references to participation in the Lido Alliance
    • Front run the DAO: The prospect of a partnership or collaboration should not be used for business development or marketing
    • Take security shortcuts: No
    • Stealth Allocate: Attempt to use the Alliance endorsement process to ‘allocate’ part of Lido DAO’s treasury in contravention of the Treasury Management Principles or its rules
  • Partner protocols should be, where relevant:
    • Ethereum-aligned
    • Thoroughly vetted from a security perspective
    • Open-source, with open-license smart contracts

Conflict resolution

In case of disagreement in relation to a specific partner, LDO token holders would always be able to vote for discontinuation of the partnership with a specific Partner. In this case, the partnership would be considered dissolved and Lido DAO’s endorsement would be immediately revoked.

If Partners are dissatisfied with the level of support dedicated to them on behalf of the Alliance Workgroup, they may, through their own governance processes, vote to dissolve the partnership and disavow Lido DAO endorsement.

Onboarding process

  1. The prospective group reaches out to the Alliance workgroup
  2. Alliance Workgroup looks to determine what the “Alliancing grounds” are:
    • if the values of the prospective team match with Lido DAO’s
    • if the product aligns & contributes towards the growth of the stETH ecosystem
    • if the team has held a high bar of security practice and diligence
  3. Alliance workgroup and the prospective group fleshes out what the partnership particulars could look like before sharing with the DAO
  4. With the Alliance Workgroup’s facilitation, the external group prepares the proposal for the DAO to onboard the project into Alliance
  5. Alliance Workgroup shares their perspective and feedback on the proposal, providing the details & context to the Lido DAO community
  6. The DAO decides by vote whether to onboard the prospective team to Alliance
  7. Endorsement is regularly reviewed by the Alliance Workgroup and material changes to the recommendations could be issued in turn

Proposal actions

This proposal requests:

  • Recognition of Lido Alliance as a group of Lido-aligned projects
  • Authorization from Lido DAO for Contributors to enact this proposal
  • Approval of the initial wishlist

This proposal also authorizes the creation of a temporary Alliance Development Committee composed of current Lido contributors, that will lead reviews for candidate protocols until the Alliance Workgroup has been appointed.

The proposal is aimed to be self-executing so that if the DAO approves it with a vote, it would not be necessary to run a subsequent vote once any real-world legal entities are in existence and ready to operate, whereas the temporary Alliance Development Committee will socialize the particulars through the research forum.

The proposal pursues idealistic non-profit goals about alignment on vision and mission and any admission of a Partner into the Alliance should not be seen as any form or shape of financial advice, nor shall it affect in any way any monetary perception about any involved tokens.

Disclaimers

Steakhouse has served Lido DAO as the finance workgroup since September 2022.


Illustrative template for Lido Alliance Workgroup Review

Key Terms

Ethereum-alignment and commitment to decentralize validation
Use-cases for stETH adoption and integration
Opportunities for node operators

Executive Summary

Dimension Conclusion Comment
Security Evaluation
Ethereum Decentralization
stETH Adoption
Benefits to Node Operators
Integration Complexity

Recommendation: Accept / Reject

Edit:

Modified wishlist as per below

17 Likes

Thanks for the proposal @steakhouse, this is a crucial moment in the (Ethereum) staking ecosystem and it’s been rather refreshing to see the thoughtfulness behind every decision from all Lido contributors in the past few months (dual governance, onchain delegation, (re)GOOSE, SDVT & CSM, etc.).

This is a new chapter for all staking & Lido enthusiasts–ecosystem alignment is what makes projects thrive. Ethereum itself is a great example, and MakerDAO’s subDAO structure is one I’m looking forward to as well.

Couldn’t be excited about this clear path for an extended (and aligned) Lido ecosystem.

7 Likes

This is a great proposal. From YieldNest, we fully support this direction, as it fits our strategic direction. We are building and sharing our AVS research and would happily collaborate and join the Alliance framework.

See the AVS Categories we have so far. These align with the strategic priorities outlined by @Hasu.

1 Like

This feels like a blackbox. My biggest gripes sit with the onboarding process. There is essentially no oversight. What is stopping this group from being dishonest or practicing favoritism towards protocols they or large stakeholders in the Lido Protocol already have a financial interest in? How would anyone know about alternatives that have also reached out to the Alliance Workgroup and who, amongst the Lido DAO, has any insight into what teams the Workgroup is or isn’t speaking to?

4 Likes

This is a very good point. The idea of our proposal is to set up a new independent team and entity that answer to token holders. we would make transparency reporting part of the structure, which could include details on the pipeline. it remains to be seen whether this is something prospective applicants would agree to, or what ‘stage’ of application is relevant. That said, transparency at the top of the funnel is a great point and should token holders approve this proposal, we could make it part of the disclosure requirements.

6 Likes

This proposal has the capability to fit well into @Hasu updated post on strategic priorities.

A few questions:

  1. The purpose of this alliance is to grow an ecosystem around stETH. What current resources and workstreams exist for this purpose beyond LEGO (more grant based) and how do you see this Alliance playing with these existing efforts?
  2. How do you envision this workstream slotting into the current Lido DAO & ecosystem, is it self governing and thus minimizes governance requirements from the LIDO DAO beyond reporting and funding? etc.
  3. Whereas LEGO clearly incentivizes parties to provide work in return for grants for Lido DAO, what incentives will draw projects into this alliance?

Building a robust ecosystem with symbiotic network effects on and around stETH is a clear requirement for the growth of the Lido DAO; and it requires being paired with a very careful and thoughtful path towards deeper decentralization, both to support and strengthen the Ethereum ecosystem as a whole. I am glad to see that this is taken into account regarding who can join the alliance and hope the working group can hold true to this. In this industries frenzied bull-market, point farming state, we often forget how important these values are and how important it is to work together on improving them for the long-term.

My team and I look forward to seeing how this progresses. Thanks!

8 Likes

As @Enti mentioned, these solutions are precisely in line with the current trends in the web3 ecosystem, effectively balancing efficiency and scalability. We can expect many ecosystems to start considering and adopting this or similar approaches over the next 1-2 years. This means that Lido will be at the forefront, setting a strong foundation and establishing a key precedent.

At this point, we can’t envision another solution that wouldn’t risk fracturing our ecosystem. Future partner protocols, such as stETH supporters, and Lido will both benefit from forming these strategic alliances, ensuring decentralization while keeping incentives aligned.

2 Likes

We’ve reviewed comments and taken feedback from the forum and elsewhere, thank you for all the engagement.

In reality, although we (as @steakhouse) would greatly welcome the emergence of new permissionless staking and restaking protocols, in retrospect we don’t believe they should necessarily be part of the Alliance wishlist or framework - though DAO token holders may decide otherwise.

The reasoning is that both stETH and restaking protocols are neutral middleware software. In this light, Lido DAO ought to remain open to the adoption of stETH across restaking protocols. This would allow AVS’ more optionality on selecting the highest quality restaking collateral for securing their networks, by opening the possibility for stETH to grow its adoption across many restaking platforms.

It would further align with @hasu goal of making stETH the #1 token in the restaking ecosystem, as users and protocols should have the option to use whatever restaking middleware suits their needs the best.

As a modification to the proposal, we suggest making the wishlist just two points:

  1. Permissionless LRTs, i.e. services that curate AVS’ but allow users to delegate ETH in a trustless and multisig-less way (similar to yearn strategies or MetaMorpho vaults)
  2. Pre-confirmation services and other AVS protocols that are Ethereum-aligned and can help make the network stronger.

While retaining the admonition to reject fund managers looking to ‘manage’ the Lido DAO treasury (as described in the proposal, nobody ‘manages’ the DAO treasury as per the Treasury Management Principles).

Furthermore, we propose making the pipeline of prospective candidates public to the extent that interested parties agree with the disclosure, and pseudonymized if not.

As described, there is no proscription to other forms of partnership with Lido DAO, whose token holders remain in control in any case.

1 Like

Thank you for this!

  1. The idea is that the Alliance, when structured, would contract a dedicated resource to help onboarded partners navigate the DAO and support them with strategy, marketing and other topics that they might find of interest
  2. The idea is not to burden governance and to keep the approval process framed within the competence of the Alliance Workgroup. The first filter is security - protocols that show promise but have room to mature their security practices would be screened out at this stage, with an invitation to return should these process-oriented questions be addressed. The Alliance, being focused on early-stage emergent protocols, will be unable to review security aspects in comprehensive detail, but we believe that orienting security practices around process can help produce good security outcomes in production. We will make these process criteria public and this point underlines the importance of @PassiveLiquidity’s comment about having a public document to share details, where allowed, regarding the projects that have explored Alliance partnership
  3. Projects that clearly align with Lido DAO’s mission will be naturally drawn to apply, and as they help drive stETH adoption and use-cases for node operators, it will also be natural for Lido DAO contributors to support partners with security best-practices or other resources. These will likely differ between projects depending on their aims, and would be likely sui generis for each proposal

Greatly appreciate the comments from everyone else.

2 Likes

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1 Like

Thank you for this proposal @steakhouse.

We support this proposal as it aligns with what we’re building at Karak. Lido’s approach to building the most secure and decentralized LST allows a protocol such as Karak to:

  1. Unlock more value for stETH users via restaking
  2. Drive more TVL as a trusted staking partner for native restaking
  3. Focus on restaking while allowing Lido to manage the ETH staking aspect
  4. Potentially onboard existing Lido operators to operate Distributed Secure Services (DSS) on Karak

Currently, Karak treats stETH as a first-class citizen asset in the protocol with no intention of ever converting it to another LST or LRT because of our fundamental belief that it is a DSS’s prerogative to decide what assets it wants to accept.

We encourage Lido to remain neutral among all existing and new restaking protocols and instead, aim to create functionality that all restaking protocols can leverage. This would make it much more attractive to simply accept stETH versus engineering a native staking solution from scratch.

Finally, we would be happy to support and explore joining the Alliance working group to help make Lido and the broader community a significant contributor, and benefactor, of the restaking economy.

4 Likes