Understanding Lido: Unlocking the Power of Ethereum's Liquid Staking Protocol

Most of the late blockchains make use of the mechanism of staking to achieve sustainability and consensus in their ecosystems. Among all of these, Ethereum remains in the front row when it comes to innovations. In the recent past, there has been massive development taken within the system of Ethereum's that has marked this entire crypto sector as a trendsetter. One of those key developments is the creation of "liquid staking," wherein Lido dominated the market entirely, becoming the first liquid staking protocol in history.

If you are active in the DeFi landscape, you probably have heard those terms – "Liquid staking" and "Lido." Let's talk about these terms and find out exactly what it is. What is Lido? Lido is a non-custodial liquid staking protocol. First launched on Ethereum in December 2020, it is a platform for crypto investors to stake their assets and reap rewards in synthetic liquid assets and other incentives. The protocol first started journeying on Ethereum and later expanded to other blockchains, including Solana, Polygon, Polkadot, and many more.

Let's first understand what liquid staking is and how it works before we proceed.

What is liquid staking? Liquid staking is staking cryptocurrency wherein the primary asset gets locked inside a smart contract, and an identical asset is issued to the user; this identical asset has got the same value in comparison with the assets that are locked, and it can be sent or received freely, also used as collateral on other dApps. Unlike the traditional staking mechanism, here the asset is locked, and in return, the user receives it after maturity with additional rewards. An asset can be put for usage even while being staked.

Back to Lido; staking incentives here is two fold one wherein staker receives liquid derivative token for the staked asset, and second is the yield accrued from staking. Liquid derivative tokens are pegged 1:1 to the underlying staked assets. Example; you stake ETH on Lido you will be receiving stETH – the ETH-pegged token- and certain percentage of returns in accordance with your staking period.

Before the Shanghai upgrade happened on Ethereum, users could not unstake their ETH once it had been staked hence Lido's liquid staking mechanism gave them the ability to use ETH even when its locked. However, the Shanghai upgrade has now been fully deployed and ETH stakers can unstake their ETH anytime and use it. This was supposedly going to bring a few drawbacks to Lido but it still functions exceptionally well and sustains itself in the market despite severe competition from similar protocols.

According to, it presently boasts a TVL of $32.58 billion with the most contributing on Ethereum and also supports leading blockchain networks that include Solana, Polygon, Moonbeam, Moonriver, and many more.

Components within the Lido ecosystem LDO Token LDO is the native token for the Lido ecosystem and is distributed as a reward to stakers. The primary use case of the LDO token is a governance mechanism for the Lido, with newer developments and protocol improvement proposals. The token grants governing rights to its owners, which allows them to vote for or against this proposal.

Lido DAO Since Lido is a decentralized staking protocol, it has to be operated by a community of LDO token holders. All those LDO holders constitute a community known as Lido DAO for governance and upkeeping the protocol. Lido DAO also controls the funds from the treasury and operational costs like development updates, community initiatives, and more.

How Does Lido Work? Lido gives users the opportunity for liquid staking, issuing stETH tokens on a 1:1 basis for ETH staked on its platform. These stETH tokens – which carry with them the real market value of ETH- can, as such be used on a variety of crypto exchanges for trading purposes. It also makes it possible to utilize the stETH tokens as collateral throughout the decentralized finance (DeFi) ecosystem's diverse dApps. Lido currently gives 3% APY on the amount staked ETH.

While taking a minimum amount of 32 ETH at stakes on the Ethereum mainnet, Lido offers flexible staking with any amount of ETH. Then it aggregates all these multiple staking deposits and sets up a node. Lido charges the node operator with a flat fee of 10% for staking rewards which users have to pay while unstaking their ETH. This fee is then split between Lido node operators and the Lido DAO treasury. As of June 2024, Lido is running over 39 nodes spread out across various blockchain networks including Ethereum, Solana, and Polygon among others, a number that outstands at 29 nodes on Ethereum and 11 on Solana.

Team Behind Lido The founders of Lido are actually the duo of well-known decentralized application developers, Kasper Rasmussen and Jordan Fish. Some members of the existing Lido team are individuals and organizations that have a very high reputation level in the DeFi ecosystem. It is the Lido DAO, an entity that looks after the development as well as the management of Lido protocol.

Lido has successfully brought in funds from several big-name investors in the crypto industry, such as Semantic VC, ParaFi Capital, Chorus, P2P Capital, Libertus Capital, Bitscale Capital, StakeFish, KR1 among others. The project is further backed by a couple of prominent DeFi figures such as Stani Kulechov-the founder of Aave- Banteg of Yearn protocol, Kain Warwick from Synthetix and more.