Pragmatically Institutionalizing Lido DAO
The only barrier to Lido DAO automating all budgeting and off-chain financials is the absence of a single text field.
Table Of Contents
– The Present State Of Lido DAO
– A Practical Solution: What Lido DAO Could Be
– Blockworks Advisory’s Primary Suggestion
– Lido DAO Opportunities For Growth
– Blockworks Advisory Relevant Work
Introduction:
Lido DAO and its community are industry role models: after our extensive analysis for the Lido Governance Manual, it’s clear that many protocol operating structures imitate Lido DAO. With DeFi maturing and fundamentals gaining mind-share, the next evolution of DAOs is institutional operating structures. This report seeks to answer whether the why behind our primary suggestions is sufficient to figure out the how, and field feedback from the community.
“Strengthen LDO’s role in governance by aligning incentives with Lido’s long-term success, promoting stability and sustainability for the protocol.” – Hasu GOOSE-2 Goal 3
We’d like to continue Lido DAO’s leadership: to be the first DAO to bridge the information gap between the DAO and its partnered organizations – promoting DAO sustainability.
Key Points:
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Advancements to information systems and governance feedback processes enhance business outcomes – boosting LDO interest – amplifying on-chain active votable supply (which is correlated with long-term positive price action).
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Lido DAO could be the only DAO to originate and automate budgets/financials for all off-chain organizations from within the DAO – the only hurdle is adding a single text field to Easy Track motions to use accounting codification standards when capital is called.
The Present State Of Lido DAO
All DAOs experience the same black box problem: input goes into the Foundation, Partnered Service Providers, and Committees, but the DAO receives minimal timely info feedback.
As of EOY 2024, off-chain operating expenses account for 50% ($28.6m) of Lido DAO’s total expenses, exhibiting an average CAGR of 54% from 2022 to 2024 (Source). Lido DAO’s off-chain expenses are opaque. Lido DAO off-chain costs are increasing:
- it must understand off-chain cost drivers (R&D expense) or longevity will be a concern;
- it must further sell treasury revenue into productive stable assets or operations will continue to be over-exposed to market risk.
If Lido DAO’s LST market share and numeric ETH staked were growing, its exposure to market risk would decrease for every unit of revenue. Essentially, with increasing ETH staked, Lido becomes less reliant on small shifts in the market to generate the same amount of revenue, so the market risk per unit of revenue would decrease; but because its market share is stabilizing and numeric ETH staked is slightly declining it is relatively overexposed.
Lido DAO’s opportunity cost of capital for over-allocating the budget will become a real expense when Lido DAO decides to distribute revenue to token holders through a fee switch.
To further illustrate, the current 2025 budget allocation totals $56.59m, and the total market value of retained stETH/stablecoin earnings is roughly $75.59m, indicating the total immobile capital is 75% of retained revenue (Source 1, 2). The cognizant reader may wonder as to what percentage the budget allocation comprises forward-looking 2025 net revenue plus the current retained treasury earnings? Assuming net revenue rhymes with the Q1 2025 average, the total immobile capital would be around 50%, which is still a material portion. We should begin understanding cost drivers now to veer away from these courses.
Lido DAO has only half its growing financial picture
Lido On X campaign resulted in a roughly –90% ROI because Lido DAO had little visibility into its current operations (Source, 3. Lido Node Operator Subgovernance Group, recent transfer of SOL). The reason for this is twofold: through the Easy Track voting system Lido DAO is writing blank checks to organizations, posing a large risk to security and a challenge to quantitative feedback. Secondly, without efficacy reviews of key strategic initiatives, Lido DAO has little qualitative feedback on how its resources are being used, the impact of the initiatives, and where to send resources next period.
Steakhouse has already automated all on-chain financials; the next evolution is automating off-chain financials to fully remove overhead for budget creation and off-chain financial projections. With this information Steakhouse will be positioned to further improve Lido DAO, even more than they already have.
Budget review and financial finality are slow because of communication requirements between Lido DAO, Lido Organizations, and inter-organization channels. Here are three examples of friction materializing:
- Next period’s budget is passed before the previous period’s financial review (Source)
- 2022 financials are not directly comparable to 2023/2024 budgeted financials (Sources 1, 2, 3, 4)
- Excluding LEGO there are no periodic efficacy review for materially impactful strategic initiatives or committees
What if we removed the bottleneck for better financial feedback?
A Practical Solution: What Lido DAO Could Be
To generate LDO interest and increase active votable supply, business outcomes require enhancement. To improve business outcomes the black box problem needs to be solved. Using the historical knowledge outlined in Lido’s Governance Manual and reducing the black box problem to first principles, it is clear that a one-of-a-kind information system is needed.
By solving the black box problem with Optimistic Financial Reporting (OFR) and periodic strategic efficacy reviews, Lido DAO and its community can make more informed decisions to drive positive business outcomes.
Pictured below, the off-chain budget/financials do not need to be broken down granularly on the front end; instead, to impact business outcomes, we measure the back-end outputs and decrease/increase the total budget based on those outputs. Rather than creating budgets and financial statements based on data before organizations call capital through Easy Track – resulting in high variance, material adjustments, and opaque spending – a new system for real -time financial reporting can be created at the outset of the called capital. Of course, such a system would need to balance transparency with privacy.
Strategic efficacy reviews and DAO-enshrined Optimistic Financial Reporting create a timely, accurate, and transparent qualitative/quantitative information system for Lido DAO to achieve its goals.
Now Lido DAO has its full financial and strategic picture
Blockworks Advisory’s Primary Suggestion
We advise the DAO to explore the following opportunities for growth. These approaches offer several key outcomes:
- Increase LDO interest: Lido DAO can allocate resources and attention more effectively by improving the information feedback system, thereby driving positive ROI outcomes to token holders, and greater LDO participation.
- Signal of Confidence: Through a token cancellation, expected dilution for LDO holders is minimized and market confidence in Lido DAO’s ability to generate lasting long-term revenue streams is affirmed. Pairing this signal with a potential revenue share creates a narrative where LDO presents lower risk alongside increased value for token holders.
- De-risk LDO & Lido DAO operations: While improving feedback systems for Lido DAO de-risks operations, it can be taken one step further by minimizing Lido DAO’s exposure to market risk through treasury diversification.
Lido DAO Opportunities For Growth
- Improve Information Systems: Optimistic Financial Reporting (OFR) is an automated real-time system for interim optimistic financials and checkpointed financial finality
- Automatic financial forecasting
- Automatic budgeting projections
- Rich Easy track information system improvements
- Monthly executive summaries on Lido DAO operations
- Strategic review team
- Accounting standard codification for all DAO payments
- Trust minimized procedures to reconcile & view DAO operating entities
- Governance Feedback Enhancements: Qualitative reporting for richer data-driven decision-making
- Strategic initiative efficacy reports
- Entity-based efficacy reports for partnered service providers & materially impactful committees
- Operational fire drills for Gate Seal
- Expand GOOSE to set a top-line KPI for each materially impactful committee
- Standardize internal controls for evaluating Contributor Group team leads
- Publicize anonymous vesting schedules of token reward program participants
- Further Diversify Treasury: The treasury must evolve to adjust for market risk and reduce firm-specific risk for LDO holders.
- Lido should consider a token cancellation on authorized but not issued LDO in the treasury to signal confidence in its revenue streams.
- Lido makes revenue in ETH and stores that revenue in stETH, resulting in concentration risk and posing concerns over Lido DAO’s operational longevity. Lido DAO should consider pursuing discriminatory selling of revenue into productive stable assets.
- Active Votable Supply Analysis: Research delegate incentive programs and collaborate to increase the active votable supply of LDO by –
- Conducting comprehensive structural analyses to identify the most effective incentive program, determine the optimal proposal-period/quorum-thresholds, and pinpoint the best timing (in days or weeks) to introduce new proposals
- Investigating the disparities between off-chain and on-chain voting, devising strategies to engage off-chain participants, and mapping out delegation structures off-chain in comparison to on-chain.
Blockworks Advisory Relevant Work
- Lido Governance Manual: A topographical business timeline from genesis to present of Lido DAO operations and execution.
- Lido Delegate Thread: Contains all of our compiled work for Lido DAO thus far.