Reevaluation of Lido on Polygon state

[Edi_ShardLabs]

Background

Despite initial optimism and significant investments, Lido on Polygon proposal by Shard Labs guided by community comments was flawed in terms of economics and has not lived up to expectations.

A similar situation was observed on all of the Lido on X editions. The latest one is highlighted with Lido on Solana.

Lido on Polygon (LoP for further reference) has faced challenges such as low user adoption, insufficient rewards on time and resources investment due to limited Polygon ecosystem growth, and increased competition for a small capturable market. In reality, with the DeFi migration push towards zkEVM, demand for Polygon POS and liquid staking as a building block of other protocols lost its footing.

These factors necessitate a reevaluation of current and future economic modifications to ensure the middleware survival or the discontinuation of the staking middleware to maintain Lido DAO focus on Ethereum, as voted in GOOSE and reGOOSE.

There are two possible paths for the future of Lido on Polygon: transitioning towards sunsetting or reevaluating the economics of the middleware.

Option Sunset Lido on Polygon

This option entails a gradual, organized Lido on Polygon sunsetting with the following characteristics:

1. Key Dates for Sunsetting:

   • Announcement Date: December 16, 2024
   • Stop New UI Staking Deposits: December 16, 2024
   • Official Termination: June 16, 2025

2. Steps to Implement Sunsetting:

   • Notifying the integrators: inform all integrators (e.g., Aave, QuickSwap) to delist the asset.

   • Notifying the users of key dates and steps they need to take via Lido Research Forum and other channels.

   • Provide Methodological support: provide detailed guides and other content to help users withdraw their staked MATIC smoothly.

   • Prepare UI and provide Tech support: ensure all staked MATIC will be available for withdrawal until June 16, 2025; users will be able to withdraw their funds via the Lido on Polygon middleware UI; after that date, withdrawals will be possible only using explorer tools.

   • On-chain steps (will consist of 2 bundles of transactions, but no need for a further DAO on-chain vote):

     • First bundle: remove all node operators and pause middleware
     • Second bundle: unpause middleware and transfer MATIC to stMATIC contract

     Note: Middleware will remain unpaused as there is no way to pause just submit function. However that will be disabled in UI. If, for any reason, users still submit funds to contracts, they will remain claimable forever.

   • Closure of Operations: Officially terminate the LoP operations by June 16, 2025

3. Operational Costs:

   Request $20000 DAI/USDT/USDC per month for 5 months ($100000 overall) to cover technical maintenance and user support during the sunsetting period. This is in line with DAO approved Lido on Solana sunset (see: Lido on Solana: next steps, Sunset of Polkadot and Kusama).

4. Wrapping up Lido on Polygon Multisig

   Original Lido and Shard Labs agreement sets out 80:20 revenue share between the parties. LoP middleware itself is implemented that protocol fees are sent to Lido DAO Treasury and Lido on Polygon multisig (0xd65Fa54F8DF43064dfd8dDF223A446fc638800A9) in 50:50 ratio. As ShardLabs never claimed any funds from either sources, we propose that ShardLabs’s part is paid out from multisig (two-fifths of the MATIC in the Lido on Polygon multisig) and rest is transferred to the Treasury. That is inline with the above mentioned agreement.

Option Initiate reevaluation

This option entails forming a dedicated group to reassess the protocol’s future: Lido DAO Contributors and Shard Labs (and optionally independent) will form an evaluation group with background both in DeFi tech, BD and marketing to conduct a comprehensive analysis of the market conditions and viability of continuing liquid staking middleware support for the Polygon POS chain. This group will also review and adjust the fee structure to reflect the operational costs associated with the upcoming Polygon 2.0 upgrade, ensuring alignment with the DAO’s financial framework.

Preliminary prediction of the development and maintenance pricing giving the incoming Polygon 2.0 upgrade (which requires middleware rewrite) is in the same ballpark as Lido on Solana with 1.5 million USD for the next year of operations. Given current fee structure is 80:20 split where 80% goes to the DAO treasury and 20% to Shard Labs, expectation is that DAO funds the 80% of the efforts to continue the operations.

The current state of Lido on Polygon, to help illustrate the need for these expenditures, can be reviewed here: Lido on Polygon Metrics.

Conclusion

We suggest to start voting, providing Lido DAO a way to choose between these options. Shard Labs will respect any token holders’ decision and continue to operate in good faith, adhering to the mission, vision, and purpose of Lido DAO.

[ErwinSmith]

Sunset, focus everything on ETH and L2s.

[TheDZhon]

I am sorry to hear this, given the team’s efforts and track record of delivering and maintaining the protocol in good faith.

Nevertheless, the landscape has changed considerably since the LoP launch, and it seems that future endeavors sometimes require hard decisions.

If I were asked, I would suggest sticking to the first option (“sunset”) because, at the very least, Lido protocol has wstETH bridged representation on Polygon PoS (with >10k wstETH bridged rn), which totally makes sense, requiring maybe less effort to maintain and evolve.

[Marin]

Hi everyone.

When a similar proposal was posted for Lido on Solana, I stated sunset, and instead of spending 1.5m to fund the Lido on Solana, DAO should just buy SOL. That one would net DAO treasury 20-30m profit right now

Sadly, even with my long history of contributing to and supporting the Polygon side, I have to state I’m very bearish on the Polygon version of Lido middleware and at this time would go even harsher by saying don’t buy POL/Matic.

To be candid, it’s not because of Shard Labs. In fact, I think Shard Labs has done a great job with the resources it has. My opinion is fully formed based on a market analysis and Polygon POS metrics / position.

For starters, all original high-level contributors to Polygon, including some of its founders, have rotated out, either by raising and starting new projects or by going away to do different things in research, changing employers, etc…

It is a serious blow to Polygon itself. Rebuilding the network and maintaining relationships for a struggling deployment that does not have enough funding and traction would be very hard.

Additionally, observing activity in Polygon Builders group, it is near 0 with an occasional NFT project dropping a Twitter link to shill. There is no building activity. As I participate in plenty of those groups in the industry, this shows me a clear signal that builders are not interested.

Polygon made a grave mistake of trying to migrate Polygon POS projects to zkEVM by removing incentives and redirecting them there. The result is what we see today.

Polygon 2.0 does sound good, and it is ambitious. However, it’s hard to find its PMF over advancements we observed on Ethereum and innovations that are happening. At the same time, I don’t see who’d build this on Polygon end or why users would rush back when they can reap the benefits of constant L2 launches.

I would love to post something positive on this topic but it’s really hard to find an argument why DAO and Shard should spend time reevaluating the state and redesigning the fee structure.

My advice and vote with delegated tokens is sunset and an urge to focus on the battle against the centralization of Ethereum when ETH ETFs get staking component included.

[Leuts]

Gm!

Apologies if this is an obvious data point for those working with this middleware or of a high strategic context:

Do you have data on the points below to help voters make an easy objective decision?:

1. Total revenue generated for Lido DAO from Lido on Polygon to date
2. Total costs to date for Lido DAO from Lido on Polygon
3. Expected revenue to continue for Lido DAO from Lido on Polygon

With the $1.5 million USDC for operations moving forward we can more easily determine the net financial impact?

Overall, and in this current market, I am a big advocate for minimizing scope and overhead. But would love some more financial information if possible first?

Thank you!

[Marin]

That’s actually a very good question.

Honestly, I will not even deep dive into it, and it’s obvious why it should be a no.

2.449,372 LDO from reWards (liquidity incentives) → 4.222,584 USD. Dashboards here include the price of LDO at the time of incentivising so we have correct figures.

94.790 USD in audits, verifiable here.

21.88 ETH for depositor bot gas, verifiable here. This one is higher as we’re a year + in future now :))

450k of LDO for milestones (market share) verifiable here.

It also has DAO contributors focus drain, especially on NOM and ProtocolRelations, DAO OPS, legal, etc. guilds.

Expenses are actually higher because this is only DAO side. Expect that in the 3 years fees for development and maintenance of the middleware are in millions on ShardLabs side for contributor compensation.

Middleware fee from launch to this date is 608.000 Matic(now POL). Matic should be at 10$ for positive 0, and that includes no further expenses accruing in any way.

[Leuts]

Thanks! Clearly a monetary loss, also not taking into consideration the opportunity cost of contributor efforts.

I am very bullish on the Agglayer but it’s very hard to deteremine what impact that would have on the price of POL and thus forecast a ROI. Maybe @steakhouse has some general thoughts?

At $10 for a positive outcome as of today, roughly, and assuming the increase of costs and a similar fee structure / output it would be quite a gargantuan task to break even.

Looking forward to any more feedback from the community.

[irina_everstake]

Hello everyone! Thanks to the Shard Labs team for raising this proposal and for their great work in its maintaining!

Regarding the both options suggested above, I think it is not rational to choose between closing and the re-evaluation. Does it make sense to make such decision affecting different stakeholders if we have not yet conducted a above mentioned comprehensive analysis of the market conditions and viability of liquid staking for Polygon?
I think on the scales should be the closure and reanimation action plan (efforts, costs, outcomes).

I do believe that we need to make a re-evaluation first, and define among others why Lido on Polygon has faced issues (my gut feeling there is not enough of marketing and user growth activities, but if THIS is the reason, thus we need to figure out what resources do we have and to understand whether we want to make any change to it or this is out of scope for DAO), it there anything else we can suggest to the staker (e.g., rewards auto-compounding which will increase final stakers rewards or staking on both the Ethereum and Polygon networks). It is not always about the market, but whether we did our best or not to get where we are now.

We can see other liquid solutions doing pretty well (even with the higher fees). What if we spend the sunset resources to the Lido on Polygon revitalization, will it allow us to have benefits in a longer perspective or in a year or so, we again get back to this?

[BlockworksResearch]

General Thoughts

At the launch of wstETH on Polygon, a key value proposition for deploying was the foundation’s incentives to bridge cross-chain (Source). From a perspective of past precedent, the lack of foundation support for DeFi on Solana, and stSol’s shrinking market share relative to competitors contributed to the phasing out of Solana wstETH.

Applying that knowledge here, and assuming the below chart of staked MATIC (dba POL) is accurate, Lido’s market share, depicted by the pink line, has been steadily decreasing throughout 2024. Compounding stMatic’s contraction, rewards for stMatic are fully depleted.

Questions

As a result, the primary question becomes: At the current market share is it economically sustainable to continue provisioning for the middleware?

A tangentially important question that should be equally weighted: what is the opportunity cost of pursuing a tail market for Lido when one of its primary directives is to increase stETH dominance (Goose 1)?

Sentiment Of Blockworks Advisory

Assuming the answer to question one is no and the answer to question two is too high, then we’d be in favor of sunsetting to refocus Lido’s efforts on Polygon towards the currently successful wstETH bridge.

[Edi_ShardLabs]

First and foremost thank you for joining the discussion.

As mentioned by @Marin there were already substantial resources spend on growth and incentives for LoP, if we ignore the team salaries and costs of running the protocol, just on incentives there was 2.449,372 LDO spend from reWards.
What kind of activities do you think we could do that would revive the protocol that can be done with a 100k$ budget?

Just a note that also on top of everything else if the protocol continues there needs to be some serious technical upgrades that would mean basically writing and auditing new version of the protocol to follow the Polygon roadmap that is evolving.

[irina_everstake]

@Edi_ShardLabs

were already substantial resources spend on growth and incentives for LoP

To be honest I can’t recall any marketing activation during the past time neither in Lido Twitter, nor in other social media I am monitoring. Here is a proof of my words: I have searched “Lido on Polygon” and other related on @LidoFinance and nothing.

If we look for “Polygon” or “MATIC” on @LidoFinance the result is (1) Polygon wstETH and MATIC stats mention in one of tweets in the weekly analytics thread; (2) info about Lido on Polygon validators infra in Lido Validator & Node Operator Metrics: Q1 2024 thread; (3) 1inch (2nd tweet) and ParaSwap (2nd tweet) threads. It is not related to any growth activities.

Maybe I am mistaken, but if the product is not visible / heard, so no new users and growth. I really hope that new users who discover Lido in 2024 know at all that Lido on Polygon exists. If the idea was just to build the product and gain the creams, thus with no constant marketing amplification and user engagement we are where we are.

@Edi_ShardLabs

What kind of activities do you think we could do that would revive the protocol that can be done with a 100k$ budget?

I can think of many, as my background is a corporate B2B and B2C marketing, but it is should not be a challenge like “suggest us something, we will post and see the results”. A holistic approach should include re-evaluation (what lack? what we can do?) → strategy (clear action plan to address identified issues and blockers) → execution → result analysis.
I can contribute on the general terms, as anyone supporting the protocol growth.

But I do also agree with @BlockworksResearch comment above. If Lido on Polygon is not a priority and out of scope for any resource allocation for its development and growth, there is no sense in this discussion at all, as whatever we brainstorm will end up in its closure.

[Marin]

LoP Twitter got blocked and taken down during an ownership transfer, so it’s easy to explain why you can’t find it. Recovery did not work.

Lido on Ethereum Twitter does not post about Lido on XYZ.

[governance-data-bot]

Snapshot vote started

Please get your wallets ready to cast a vote , the Reevaluation of Lido on Polygon state Snapshot has started! The Snapshots ends on Thu, 28 Nov 2024 16:00:00 GMT.

[Nansen]

As a recent participant in Lido governance, we support the proposal to sunset Lido on Polygon (LoP). While we weren’t involved in the initial launch, we share sentiment around the current state of Polygon raising concerns around the chances of a successful return to previous user and activity levels. Notably the exodus of key contributors including founding members, coupled with declining ecosystem metrics and the broader DeFi migration towards other solutions indicate that continuing LoP operations would not serve the DAO’s best interests. We commend Shard Labs’ implementation efforts and agree the structured sunset plan with its six-month withdrawal window and operational budget of $100,000 represents a responsible approach to winding down operations.

Clearly this situation serves as a valuable lesson for future expansion proposals and grant evaluations, highlighting the importance of assessing not just technical feasibility but also long-term ecosystem sustainability.

[Ignas]

I think this is a tough decision, but I agree Lido should focus on its core operations like Ethereum, where they has strong growth and community support. Spreading resources too thin on areas that aren’t showing much value or adoption isn’t sustainable.

Although polygon has potential with recent ecosystem growth or zkEVM developments, the costs in liquidity incentives or audit expenses and other costs are higher than the returns. So, I voted to “sunset Lido on Polygon” and focus on core activities to minimize financial losses.

[TokenLogic]

TokenLogic fully supports the proposal to sunset Lido on Polygon. The challenges within the Polygon ecosystem make it highly unlikely to revive LoP’s user base and activity to sustainable levels. The breakeven point is far out of reach, and the opportunity cost of continuing to invest in LoP significantly outweighs any potential benefits. When factoring in the substantial expenses from liquidity incentives and audits, it becomes clear that maintaining LoP is an inefficient use of resources.

We strongly advocate for focusing on Lido’s core strengths—areas where the protocol has demonstrated consistent growth, strong revenue generation, and robust community support.

Shard Labs has done an admirable job in managing LoP, and the proposed sunset plan—with its detailed timeline, six-month withdrawal period, and a reasonable $100,000 operational budget—reflects a responsible and user-focused approach to winding down.

[Kate_Alekseeva]

Snapshot vote ended

The Reevaluation of Lido on Polygon state Snapshot vote concluded!
The results are:
Sunset Lido on Polygon: 58M LDO
Initiate reevaluation: 81K LDO

[Edi_ShardLabs]

Here is public proof of address for management of sunseting Lido on Polygon and payout of Shard Labs’s revenue share.

Shard Labs