Lido on Solana Funding Proposal

Hi @mediakov, thank you for posting the proposal and providing clarity on top of multiple options to choose from.

This does put me in a challenging position as I enjoy collaborating with you and the p2p crew, but in the following lines, I have to provide an unbiased opinion based on my expertise in the business segment.

To discuss holistically we need to have some basic data insight into the ecosystem.

Image 1

Solana DeFi TVL

Image 2

Solana Top 10 protocols by TVL

Image 3

Solana Top (6) Liquid Staking protocols selected by criteria of 1 million USD TVL and more.

Image 4

Top 10 chains selected by criteria of TVL regardless of architecture

By observing image 1 we can see the Solana chain having TVL / local supply problems that started in 2022. Arguably, industry had multiple black swan events, including Terra collapse, 3AC, Celsius, and ultimately FTX that left Solana under heavy pressure and without one of its largest supporters.

It is hard to notice any meaningful sign of recovery on-chain while Solana Foundation additionally being conservative with interactions and support to DeFi. The comparison I have luxury making due to multi-chain contributions is with Polygon Foundation, where they actively incentivize projects to bridge the gap to sustainability with large token allocations.

Diving a bit deeper takes us to some numbers in terms of DeFi TVL.
As you can observe in image 1 Solana has 311m USD DeFi TVL on Friday 8th September at 12:50 PM KST.
The amount of TVL alone is not competitive with the majority of L2’s in the Ethereum ecosystem, which is alarming for DeFi projects, observable on image 4. In fact, Solana does have a decent number of deployed DeFi protocols(108), but undisputeably point remains that the majority did not reach the growth phase and have marginal TVL.

Image 2 provides clear insight that the top 5 protocols have 271.79 million USD DeFi TVL, which is 87,4% of total TVL. It gets worse when you observe image 3 and see that the top 3 Liquid staking providers have 188m TVL which is 60.71% of the total DeFi TVL. Just by comparing the high-level numbers, we can observe that DEXs and lending markets deployed do not create the effect of composability and increase the local TVL levels. There is also a lack of blue chip brands that would have the gravitational pull of popular DeFi protocols focused on strategies to build on top of them.

It is not directly protocol fault for not capturing, but due to various events and lack of user interactions, there is no proper flywheel in motion that can push sustainable returns based on actions rather than the only source of rewards being validator rewards. Many native projects are looking at cross-chain deployment compared to previous sentiment of being only Solana native.
My personal opinion is that DeFi protocols have to go conservative on the treasury as it is not good nor easy to raise follow-up rounds at this time and bullish market environment is still not tangible. That also means no incentives for anybody, and users will rather hunt opportunities with newly launched L2s. What horrifies me is that none of these protocols deployed, including Lido on Solana are sustainable and if nothing changes we’re looking at potential serial shutdown when VC money is gone or potential SOS packages (grants) get spent.

Transparently, even with a 311m USD worth of stake in Lido on Solana and being 100% of Solana DeFi TVL it would still not be able to operate on positive 0 and cover base expenses. Protocol fee share would be 1.15M USD a year (gross), equaling monthly fees of 95k. Meanwhile retainer ask is 200k USD a month just for a small team to operate.

Lucas Bruder, CEO of Jito Labs, and Solana co-founder Anatoly Yakovenko both say they believe liquid staking is under-utilised on Solana.
(Credit: Rita Fortunato/DL News)
Source: Liquid staking is a huge opportunity on Solana. Why aren’t more doing it? – DL News

While I can agree with the statement I can aswell counter argue that by having over 70% of SOL staked and Liquid Staking market being under 3% of it clearly means users on Solana do not align with the mission and purpose of Liquid Staking Protocols and are more interested into maximising returns with direct “native” staking. It is not a situation that magically happened now. It is ongoing for an extended period of time
(source: Solana Staking Statistics: Track Rewards, Total Stake, Rankings + Economy)

Incentives itself are not the reason why users are not converting to Liquid Staking solutions as DAO allocated over 10 million USD worth of incentives to generate utilization and attract more stakers on Solana.

I strongly oppose giving out funding to additional incentivization as the Lido DAO treasury should not be a lifeline to smaller protocols nor the ecosystem itself. That weight should fall on higher instances and not on protocol level, no matter the size of it.

In response to the actual 1.5m ask I really have to surface the business nature of the proposals. LoX launched with the bull mentality and actual proposals do not have business sense. This is where everybody is always aligned. Where we’re misaligning is the size of the asks to actually extend survavilability rate of the protocol itself. This venture is not profitable for both parties involved.

One can’t help not to argue why would DAO treasury have exposure to 1.5m USD invest for potential return of 10k SOL (1 SOL trading at 19.68 USD at the time of writing) translating to 196.800 USD with a high likelihood of having repeated scenario in a year.
Voters need to be aware that it would require 7.6x increase in SOL price for treasury to be at 0. Meanwhile if DAO diversifies treasury with SOL (just as an example) with a 1.5m USD purchase today would have 76k SOL on balance sheet!

Additionally what is causing a lot of friction with this proposal is an actual precedent that would be set with the funding. The realistic expectation is for Lido on Polygon development team (Shard Labs) to follow up on it and seek extra funding, so price tag for the DAO treasury is at 3 million to begin with. In case other LoX protocols launch in the future they would have the same expectation in case sustainability is not there after a while.

To wrap up the thoughts it’s not that I’m bearish on Solana and it’s future. Not trying to diminish the potential of asset or ecosystem in future growth, what I’m reflecting here is pure business logic that needs to be applied and considered before voting.

I am eager to read if somebody has an alternative point of view to change my mind, but with the current state of matters, I cannot vote YES to funding 1.5m with a clear consciousness.