Sunset Lido on Polygon

[kentie]

Hi Marin, thanks for responding. You are right. I am pushing for Lido to be a completely native ETH in light of increased competition.

@Marin

The majority of LoX protocols suffered because of DAO’s dedication to Ethereum, and from day one, it was always Ethereum aligned and prioritizing it in day-to-day contributions.

I understand why you chose to articulate it this way but spending $3M in last 12 months for Lido on Polygon in rewards is not exactly neglecting LoX. You statement could be true for other chains but certainly not for Lido on Polygon.

@Marin

Now it’s LoE protocol powering LoX, but it might be the other way around in the future.

I agree with you that we should invest in alternative bets. However, that logic could very well be applicable to the recent sunset “Lido on Solana”. Again, this conversation is not comparing two different chains and TVLs. The question that I would ask ourselves is, at what point is this bet doomed? Right now, the spend for Lido on Polygon based on open data from the last 12 months is yielding 5 cents on every dollar spent. This does feel like a sunk cost unless we can agree to timebox this experiment. The fees earned through Lido on Polygon also ties into treasury management, which is a story for another time.
Maybe open/transparent data from the Liquidity Observation Lab (that I am unable to find) can help confirm the recent spending on Polygon and what the DAO’s take rate is per $ spent if anything has changed in the recent months.

@Marin

This should not be a sunset reason in any case for any LoX deployment. No stakers were impacted in the process and service resumed after the code was audited again.

I agree with you. I am not suggesting that we sunset because of this specific bug. It is worth thinking through brand risk for LoE because of bugs on LoP. Let me provide an example to articulate the cross-network risks. If a sizeable hack occurred on LoP, it would result in maybe 5-10% outflows on LoE. For example, Curve lost 25% of it’s TVL despite broadcasting that the situation was under control. Both Curve and Balancer saw their cross-chain TVL going down. Is it worth losing millions of dollars in revenue on LoE because of a technically unrelated hack on LoP? There are no easy answers here.
It is at least worthwhile separating LoP into Liquid Staking on Polygon by Shard Labs so we reduce this risk. The last thing I want tearing down Lido on Ethereum, is the optics of a major hack on a Lido-branded product on other chains.

@Marin

Another important clarification is that total value locked is a wrong metric here. It shows the USD value instead of Matic value. Lido on Polygon protocol is near its all time hight in terms of the staked amount of Matic, while USD value decreased due to the market conditions.

I believe you may have misunderstood my point. I am talking about the Polygon ecosystem’s DeFi TVL, not LoP’s. My point was that compared to Arbitrum or Base, Polygon has struggled to retain its TVL and has seen an overall drawdown across stablecoins, defi activity, etc.

Polygon DeFi TVL

Solana DeFI TVL

Arbitrum DeFi TVL

@Marin

Regardless of what competition does, the goal was never to compete but to help decentralize Polygon POS, distribute the stake across multiple operators in the set as evenly as possible, and provide staking rewards to Polygon POS users while maintaining the basic utility of MATIC token. Even though the bear market took its toll on DeFi ecosystems industry-wide, it did not affect the relationship of Polygon, ShardLabs and Lido DAO contributors.

This is great to hear. I am more focused on “How long do we fund this experiment when there is no clear visibility for profitability?”

I am broadly hearing from your position that “LoX could come to the rescue of LoE at a future point”. Here is my take

1. We may not see a chain that gives Lido a dominant position as Ethereum does.
2. Polygon may not be the golden goose at a future point, despite other chains being so.

@Marin

If LDO holders would vote to sunset Lido on Polygon protocol it would be a really bad signal to anybody who wants to collaborate with the DAO as trust would be highly impacted

I don’t think we should view it as binary, as you suggest. Shard Labs has renegotiated its compensation structure by redoing a previously voted proposal with a new one. Please find multiple votes and renegotiation here
It is perfectly reasonable to put forth concerns of unprofitability, and unsustainability given the market dynamics have changed.

Summary
I would love to get more feedback from other active DAO participants, specifically on the following}

1. Should we continue funding Lido on Polygon? Under the current market conditions, the incentive & compensation spends are highly disproportionate to revenues (20:1)

2. If we continue to fund Lido on Polygon, how can we timebox this initiative so we don’t need to continue incurring losses for the foreseeable future? I would propose we renegotiate with Shard Labs on the compensation structure as LDO tokens have 4x’ed in price since the last negotiation. How do we create better legal/DAO boundaries between LoE and LoP to preserve the position on LoE?

3. How do we think about a general framework where LoX (or another name) can be incentivized without sharing the reputational risks, etc? Should renegotiations be baked in every 12 months? Should these LSTs on other chains start as an offshoot non-Lido branded initiative that could be “acquired” after they are battle-tested?