TL;DR
Lido Earn is designed with high security standards, DAO oversight, and transparency consistent with Lido’s approach. This proposal requests a “skin-in-the-game” $5m DAO treasury allocation into Lido Earn vaults. This aligns the DAO alongside depositors and enables a mandate-defined, onchain first-loss alignment mechanism for severe scenarios. The intent is to strengthen trust in Earn so it can scale sustainably over time.
Context
Vaults are an increasingly competitive, outcome-driven market. Durable advantage comes less from packaging yield and more from earning trust—especially when conditions change. Many returns exist because strategies take on real risk; what matters is whether risks are understood, bounded, and managed with discipline.
Lido Earn builds on the practices behind Lido’s track record—rigorous security, careful strategy selection, and transparent oversight. The goal isn’t risk-free vaults, but credible alignment that supports confidence in drawdowns and helps Earn scale. The primary upside is Earn’s growth as a product; allocation returns are secondary.
Objectives
- Support Earn growth: Reduce trust friction for new depositors and strengthen retention under stress by making alignment and incident posture verifiable onchain—so Earn can scale sustainably.
- Visible DAO alignment: A public, measurable commitment where the DAO deposits alongside users, sharing the same upside and downside with transparent alignment.
- Severe-scenario loss absorption: After confirmed incident triggers, some or all DAO-held shares in the affected vault may be burned (up to 100%) to raise remaining users’ share price, with losses absorbed through the DAO position.
- Bounded, allocation-only authorization: No incentives or marketing—only vault allocations and necessary execution costs—approved as a one-time DAO authorization (not covered by EGG/GOOSE operations scope).
The Proposal
Summary
The allocation will be proposed by the Lido Earn Team and executed by the Growth Committee (“GC”) (funded via Easy Track), under DAO-defined controls and reporting.
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Assets: $5m ($3m in wstETH, $2m in USDC)
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Scope: Allocated to Lido Earn Vaults (see “Allocation scope”).
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Use: Allocate capital and accrue rewards, first-loss cover in case of unforeseen events.
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Economics: rewards compound inside the vault and are remitted to the Treasury only if needed as part of the annual budgeting process; deployment may be partial (see “Rewards & performance expectations”).
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Controls (mandate-enforced): (see “Risk control")
- 1% loss pause (per vault): on flagged ≥1% loss, halts further DAO Treasury allocation under this mandate;
- First-loss: if a ≥1% loss is confirmed, DAO-held shares can be burnt (up to 100% for that vault) to socialize losses through the DAO position and raise the share price for remaining depositors. (See “Risk control: B First-loss mechanism”)
- Escape hatch (material risk): on confirmed material risk, Lido Earn Team can trigger execution to de-risk/withdraw via normal mechanics (no preferential redemption);
- Reporting: 7-days incidents report for above controls; quarterly reporting.
- DAO Override / Return of fund: Via governance, DAO’s positions can be withdrawn via standard vault redemption (no preferential terms). The DAO can also terminate the mandate anytime.
Roles & responsibilities
- Lido Earn Team (mandate owner) - sets allocation intent; selects actions after confirmed triggers; publishes updates.
- Growth Committee (GC) (executor) - executes deposits/withdrawals/conversions and mandate actions.
- Vault Curators (vault ops) - operate strategies; flag + jointly confirm triggers with evidence.
- Infrastructure/Security service providers (signal-only) - escalate credible incidents; no fund-movement authority.
- Lido DAO (oversight)- Can modify, pause, or terminate the authorization at any time via governance.
Rewards & performance expectations
- Treasury allocations earn the same vault returns as any depositor, net of vault-level fees and execution costs (swap fees/gas) incurred to allocate/withdraw.
- The Lido Earn Team’s product objective is to target competitive, risk-adjusted net yields. However, returns are variable, not guaranteed, and loss scenarios are possible.
- Quarterly reporting will reflect rewards in their share price and any mandate actions.
- To avoid quarterly operational burden and imporve capital efficiency for DAO, the yield will be compounded inside the vault and only remitted to the Treasury if needed as part of the annual budgeting process.
Implementation details
Authorize a $5m DAO Treasury allocation for deployment into Lido Earn Vaults, funded via Easy Track, and executed by the Growth Committee (GC), under this mandate.
1) Allocation size & assets
- $5m total, allocated as:
- $3m wstETH
- $2m USDC
- Amounts are measured at the time of execution using prevailing market rates.
The allocation may be deployed in tranches for risk and operational reasons. Undeployed balances may earn no vault yield.
2) Allocation scope
- The allocation may only be deployed across upcoming Lido Earn ETH Vault and Lido Earn USD Vault under this mandate, subject to the same DAO constraints (allocation-only, reporting, loss pause, first-loss burn mechanics, and escape hatch).
- Deposit-asset scope: limited to the ETH and USD vault deposit assets described in this proposal. Any allocation outside these two vaults requires explicit DAO approval.
- First-loss execution readiness (mandatory): Allocation to the Lido Earn ETH and Lido Earn USD vaults may be executed even if the burn-function is not yet deployed. If a ≥1% loss is confirmed before the burn-function is available, GC executes an economically equivalent manual loss-absorption action per mandate instructions with incident disclosure. If/when the vaults are patched with the burn-function, GC will withdraw and re-deposit to activate technical execution via contractual functions.
3) Burn-readiness gating (allocation precondition)
- Burn-ready means: (i) an onchain DAO-only share-burn function is deployed for the vault, (ii) the DAO’s vault shares are held by the GC execution address (the “DAO share-holding address”), and (iii) GC has the onchain permissions needed to execute a burn from that address.
- Allocation may proceed into the ETH and USD vaults even if the burn-function is not yet deployed. If first-loss is triggered before the burn-function is available, GC executes an economically equivalent manual loss-absorption action per mandate instructions with incident disclosure. If/when the vaults are patched with the burn-function, GC will withdraw and re-deposit to activate technical execution via contractual functions.
Execution & controls
Operator
- Executor: Growth Committee (GC) executes deposits/withdrawals/conversions, in line with this mandate and initiated by Lido Earn Team.
- Vault Curators: monitor vault performance and valuation inputs and publish the evidence for trigger confirmation for 1% loss and material risk events (per-vault 1% loss; material risk).
- Lido Earn Team: decides the response action once a trigger is confirmed (pause only / pause + burn / escape hatch) and publishes incident updates + quarterly reporting (with accounting + curator vault context). (see “Risk control” for triggers & actions.)
- Following approval, the Lido Earn Team will implement and deploy the DAO-only share-burn function for the ETH and USD vaults and ensure GC has the required permissions to execute it. Allocation may proceed prior to deployment; GC will withdraw and re-deposit after the burn-function is deployed to activate technical execution via contractual functions.
- DAO share-holding address: For this mandate, the DAO share-holding address is the GC-controlled execution address that receives Treasury assets via Easy Track and holds the resulting vault share tokens for allocations under this mandate.
Rewards
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All net rewards (after vault-level fees and necessary execution costs) attributable to deployed amounts accrue to the DAO Treasury and accrue to the DAO Treasury and are retained for compounding; they are remitted only if needed as part of the annual budgeting process (quarterly reporting reflects share price appreciation and mandate actions).
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See “Rewards & performance expectations” for how targets are framed and how realized results are reported.
Hard use restriction (allocation-only)
Treasury allocation assets may be used only for:
- deposits/withdrawals into Earn vaults
- conversions/swaps required solely to execute those allocations
- necessary execution costs (e.g., swap fees and gas)
Treasury allocation assets may not be used for:
- user incentives
- marketing/grants/sponsorships
- curator/partner incentives
- operating expenses
Risk control
A) 1% deployed-capital loss pause (per vault; hard stop on new deposits)
If a ≥1% mark-to-market loss is suspected in an affected vault (measured using the vault’s standard valuation and a curator-documented cross-check), then:
- any of the vault curators flags the suspected loss (with evidence + valuation basis);
- GC pauses further DAO Treasury allocation deposits into the affected vault under this mandate (no additional deposits / no increases in exposure);
- affected vaults curators (always include meta-vault) confirm whether the ≥1% loss is met and document the cross-checks used;
- Lido Earn Team publishes an incident update within 7 days outlining drivers, confirmation status, and next steps. If mutaul confirmation is not reached within 7 days of the initial flag, the update must state pending/contested status and an expected timeline. Evidence disclosure is optional; sensitive details may be withheld. The deposit pause remains until joint confirmation or DAO override.
Clarification:
applies only to DAO Treasury allocation actions under this mandate; no impact on users/vault ops. Not an auto-redemption.
B) First-loss mechanism (share burn; mandate-enabled)
After a confirmed ≥1% loss, Lido Earn Team may instruct GC to socialize losses through the DAO allocation in the affected vault by burning DAO-held shares only:
- affected vaults curators confirm/flag breach + provide evidence and valuation basis.
- Lido Earn Team specifies burn amount/rationale (up to 100% DAO-held shares in that vault).
- If the onchain burn-function is available and activated, GC burns DAO-held shares onchain. If not yet available, GC executes an economically equivalent manual loss-absorption action per mandate instructions with incident disclosure.
- Allocation may occur before the burn-function is deployed; therefore first-loss must remain operationally executable (manual or onchain). Any inability to execute must be treated as an incident, disclosed, and accompanied by root-cause + remediation steps.
- Burning reduces total shares outstanding, increasing remaining users’ share price (losses absorbed by the DAO position).
Clarifications:
- The Lido Earn Team intends to implement DAO-share burn support for the ETH and USD vaults following approval. This implementation is not itself the subject of the DAO vote; it is a product/contract capability that, once available, may be used under this mandate.
- Burn is irreversible, applies only to DAO-held shares, and does not create contractual senior/junior claims.
- The burn decision must be documented in the incident update (execution may precede posting if time-sensitive).
C) Escape hatch (material risk; de-risk / withdraw, not burn)
If a material risk event is flagged (even if the 1% loss threshold has not been reached), then:
- any vault curator may flag the event with supporting evidence;
- upon a curator flag, this mandate triggers execution of GC pausing DAO Treasury allocation deposits into the affected vault under this mandate while confirmation is completed;
- affected vaults curators mutually confirm whether it meets the material risk standard (documenting evidence + valuation basis);
- in case of confirmation, Lido Earn Team may instruct GC to de-risk / withdraw DAO exposure using normal vault mechanics (no preferential redemption);
- Lido Earn Team posts an incident update as soon as practicable (and within 7 days) covering status, actions, and next steps. If confirmation isn’t reached within 7 days, the update states pending/contested + expected timeline; the deposit pause remains until confirmation or DAO override.
Clarifications:
- Material risk scope: events impacting safe operation, asset integrity, settlement/finality, legal permissibility, or critical dependencies.
- Exclusion: underperformance/drawdowns/yield shortfalls alone don’t qualify—only if driven by a confirmed integrity/dependency failure, stated in the incident update.
- First-loss interaction: escape hatch is for integrity/operability risk containment, not for avoiding loss socialization. If escape hatch is used before a confirmed ≥1% loss, the incident update must state (i) whether first-loss burn remains feasible, (ii) whether Lido Earn Team intends to pursue burn if ≥1% is later confirmed, and (iii) if not, why.
Reporting
Quarterly, the Lido Earn Team publishes (with GC-provided accounting and curator context):
- allocation by vault (current positions)
- % deployed vs undeployed (end-of-period)
- net rewards remitted to Treasury vs total losses (if any)
- any mandate actions taken (1% pause triggered; burn executed; escape hatch used), with links to incident updates
- any burn-readiness onchain references per allocated vault (burn module/function reference, DAO share-holding address, and GC permission configuration), with transaction references
DAO governance override
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Lido DAO may modify or terminate this authorization at any time.
This mandate is subordinate to DAO governance. The DAO may modify, pause, or terminate this authorization at any time.
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Default rule: When a mandate control is triggered (pause / escape hatch / first-loss), GC and the Lido Earn Team act per the process defined in Risk control.
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DAO override: The DAO may explicitly override any mandate action (e.g., lift/extend a pause, require/forbid burn, require/forbid withdrawal) via governance. Such overrides are exceptional and should be understood as the DAO assuming reputational responsibility for the outcome relative to the mandate’s stated user-alignment intent.
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Termination effect: On termination, GC must stop new allocations immediately and manage any unwind via normal vault mechanics (no preferential redemption), subject to available liquidity.