Should Lido on Ethereum be limited to some fixed % of stake?

Two main thoughts, and the second topic I feel much more strongly about:

(1)

Regarding selt-limiting, my weakly-held opinion is: any solution that requests protocols or products to handicap themselves or make their product worse is not really a solution. Blockchains cannot rely on altruistic and mission-aligned actors in order to maintain a healthy ecosystem.

Ethereum is fragile if it needs people to behave themselves to survive, rather than the incentives at L1 providing healthy coordination conditions. The cultural solution of “Vitalik tweeting to request market share reduction” will not work if the founders/builders transition away from being purpose-aligned to being more mercenary tradfi institutions.

That said, while I believe that a liquid staking solution could safely have a large portion (>50%) of staking market share, I also believe that Lido as an incentives/coordination layer protocol is not there yet and there are a lot of improvements to be made prior to that not being an undesirable reality post-merge. So I could see how limiting growth prior to the ability for users to exit (for example) is not an unreasonable suggestion in the circumstances.

In general, I don’t have a strongly-held opinion on this topic and think both sides have decent arguments.

(2)

There has been suggestions by observers to increase fees on Lido now to decrease market share. I strongly believe this is a mistake, knee-jerk reaction without proper considerations. Increasing fees on existing Lido stakers prior to their ability to exit is not just unprincipled, I believe it is perhaps even fraudulent.

Users staked with Lido with particular terms and agreements: one of those terms was a specific fee structure. Unilaterally changing those conditions on billions of dollars of user-owned funds should not even be under consideration until every single users has the ability to protest the fee by no longer being a user of Lido.

The ability to sell stETH on Curve is not sufficient. It does not allow every user to exit, and it could cause those that do want to exit to take ETH losses due to slippage.

Not only is it harmful to users, to which Lido has a primary responsibility, it is also a bad suggestion!

Since ETH cannot exit Lido prior to tx on eth2, modified fee-structures cannot reduce the amount of ETH in Lido… even at 100% annual fee!

Instead, it can only slow new growth by making it less attractive to future stakers. Hostage-taking increased revenue hurts existing users in order to dissuade new users. I believe this is unacceptable. When it becomes possible for users to unstake, suggestions like this could be entertained (given sufficient notification periods on major changes like fees).

Until then, if Lido wanted to dissuade new stake growth, it should do so in a way that does not betray existing users, for example, by adding a staking “entrance fee” (stake 1 eth, receive 0.95 stETH).

Any suggestions to unilaterally increase fees on all stETH holders should be rejected.

Lido has a responsibility to its users and cannot change the financial terms of the agreement until every user is able to safely exit the agreement in response.

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