Lido DAO: liquid staking solution

By Rayna Ishihara | Crescent City Capital Market Analyst Intern

What is Lido DAO

Lido DAO is a decentralized autonomous organization that offers a liquid staking solution for various proof-of-stake cryptocurrencies, including Ethereum and other popular blockchains like Solana, Polygon, Polkadot, and Kusama. The platform allows users to stake their coins and earn staking rewards while maintaining the liquidity of their tokens. Through Lido’s innovative liquid staking process, users receive tokenized versions of their staked assets, which can be used to participate in other decentralized finance (DeFi) protocols, generating additional yields.

Since its establishment in December 2020, Lido DAO has become a trusted and reputable platform with over $13 billion in staked assets. It is governed by a community of stakeholders through decentralized governance using the Lido DAO’s native token, LDO. Each LDO token represents a voting right, and the voting power is proportional to the stake held by token holders.

Lido DAO stands out from other liquid staking protocols due to its decentralized nature and attractive annual percentage rates (APR). It provides a user-friendly solution for staking and earning rewards, while also allowing users to access the locked value of their staked tokens through tokenized representations. The platform’s focus extends beyond Ethereum, as it has expanded its support to other blockchain networks like Solana and Terra. With its adaptable and upgradable voting mechanism, Lido DAO can make changes to its governance structure without disrupting its core functions, ensuring flexibility and transparency in decision-making.

What is liquid staking

One of the main challenges of staking on proof-of-stake (PoS) blockchains is the lack of liquidity. When users stake their tokens, they are unable to withdraw or access them until the lock-up period ends. This prevents them from earning additional yields from other DeFi protocols during that time. Moreover, the high costs and complexity involved in setting up a validator node act as barriers to entry for many retail users who want to participate in PoS staking.

Staking involves locking crypto assets for a specific duration to earn yields. However, the drawback of traditional staking is the inability to access locked tokens. Liquid staking aims to overcome this limitation by providing a solution that addresses token illiquidity.

In liquid staking, users receive tokenized versions of their deposited funds, known as stAsset tokens, in a 1:1 ratio. Along with earning staking yields, users can also generate additional yields by utilizing these stAsset tokens as collateral for loans or participating in yield farming on other DeFi protocols.

How does Lido DAO work

Lido DAO operates through the Lido protocol, providing liquid staking services that address the challenges of token illiquidity, complexity, and centralization in PoS staking. By utilizing the Lido platform, users can earn block rewards from staking their PoS assets while maintaining access to their locked tokens.

To participate in Lido DAO, users stake their tokens by depositing them into a staking pool smart contract. In return, users receive stAsset tokens, such as stETH for Ethereum or stDOT for Polkadot, which represent the value of their staked assets. These stAsset tokens can be freely used in various DeFi protocols and decentralized applications (dapps) such as lending platforms, yield farming, or trading on decentralized exchanges (DEXs).

The staking pool smart contract manages the users’ deposits and withdrawals, sets staking reward fees, delegates funds to node operators responsible for securing the PoS blockchain, and mints or burns stAsset tokens as needed. This process allows users to earn staking rewards while enjoying the benefits of liquidity and flexibility provided by the stAsset tokens.

In addition, Lido DAO’s governance is facilitated by the LDO token. LDO holders have voting rights within the DAO, enabling them to participate in decentralized decision-making processes that shape the future of the protocol.

Lido DAO has expanded its support beyond Ethereum to include other blockchains like Polygon, Solana, Polkadot, and Kusama. This broadens the range of stAsset tokens available, allowing users to stake and earn rewards across multiple PoS networks through a unified interface provided by Lido DAO.

Lido Token

Lido DAO’s liquid staking protocol allows users to earn stETH tokens in a 1:1 ratio when staking ETH. These stETH tokens represent the deposited ETH and can be used just like regular ETH. Users can earn real-time staking rewards without any lock-ups or minimum deposit requirements. The stETH tokens can be utilized across the DeFi ecosystem to earn higher yields, enabling users to bypass the need for locking up their staked coins.

Lido DAO’s platform facilitates three key processes: staking, minting, and DeFi. Through staking, users deposit their desired amount of ETH onto the platform. In return, Lido mints stETH tokens at a 1:1 ratio, serving as ERC-20 representations of the staked ETH. These stETH tokens can then be used in various DeFi applications to generate additional yields without the typical lock-up requirements.

Lido DAO’s governance is managed through its native token, LDO. LDO is an ERC-20 token that grants holders governance rights and the ability to vote on proposals, upgrades, and network parameters. The voting power of LDO holders is determined by the amount of LDO locked in their voting contract, giving more decision-making influence to those with greater holdings. Additionally, Lido DAO’s governance oversees the management of insurance and development funds, as well as the forthcoming unbonding and withdrawals associated with Ethereum’s Shappella upgrade.

Summary

Lido DAO is a decentralized autonomous organization that revolutionizes staking through its liquid staking protocol. By depositing PoS assets, users receive stTokens in return, which represent their staked holdings. These stTokens can be freely utilized across various DeFi platforms, enabling users to earn rewards and engage in activities like lending, yield farming, and trading. Lido DAO’s solution eliminates the traditional limitations of lock-up periods and minimum deposit requirements, providing users with increased liquidity and flexibility.

The governance of Lido DAO is driven by the LDO token, which grants holders the power to participate in decision-making processes regarding protocol upgrades, network parameters, and other important matters. Lido DAO has expanded its support beyond Ethereum, encompassing other PoS blockchains, thus widening the range of staking opportunities available to users. Through its user-friendly approach, Lido DAO aims to make staking more accessible, efficient, and rewarding, empowering individuals to actively participate in the PoS ecosystem and maximize their earning potential in the rapidly evolving DeFi landscape.

Recent Updates

The live LDO price on January  15th  is $3.40 USD with a 24-hour trading volume of $106,012,357 USD. It has a circulating supply of 890,184,858 LDO tokens.

The price of Lido has increased by 19.89% in the past 7 days, and increased by 50.32% in the past months. Lido is 70.38% below the all time high of $11.

Market Analysis

Lido DAO stands out amidst the volatile price movements of crypto currencies with its impressive price performance. According to CoinMarketCap, Lido DAO has exhibited strong positive momentum, experiencing a remarkable 50% surge over the past month. While its recent performance has moderated slightly, with a 20% increase in the last week and a subsequent 1.78% rise in the past day, Lido DAO’s year-long trajectory remains impressive. Over the course of the year, the token’s price has climbed over 50%, currently standing at $3.40 compared to $2.22 a year ago. This consistent growth highlights the significant potential of Lido DAO, although the duration of this upward trend remains uncertain.

On January 10, the US Securities and Exchange Commission approved eleven spot bitcoin ETFs. Spot bitcoin ETFs are investment products that allow regular investors to gain exposure to bitcoin’s price movements through their standard brokerage accounts. Distinguishing themselves from bitcoin futures ETFs, spot bitcoin ETFs directly invest in bitcoins rather than relying on derivative contracts based on bitcoin prices.

Spot bitcoin ETFs offer a regulated and accessible pathway for mainstream investors to enter the digital currency market. By investing in a spot bitcoin ETF, individuals can participate in the potential growth of bitcoin without the need to directly acquire and store the cryptocurrency. This investment vehicle enables investors to track and benefit from bitcoin’s performance while operating within the familiar framework of their brokerage accounts.

Lido DAO’s dominant reliance on Ethereum further enhances its potential. As Ethereum has experienced a price surge, Lido DAO has also seen positive implications. Notably, Ethereum has outperformed other top digital currencies, such as Bitcoin and Tether, with only Ethereum exhibiting price gains over the past week. This favorable trend adds to the optimism surrounding Lido DAO’s potential, as it is closely aligned with Ethereum’s performance.

From a technical perspective, analyzing the chart reveals Lido DAO’s journey throughout 2023. The year proved challenging for Lido DAO as a prevailing downtrend dominated its structure until an accumulation phase formed between August and October, establishing a support line around $1.43. Following the bounce off this support line, Lido DAO embarked on an upward trajectory, reaching a short-term all-time high of $2.6. By the end of November, Lido DAO breached the resistance line, demonstrating strong support and surging towards new highs with a 90% upward movement.

In my opinion, the current timing presents an opportune moment to invest in Lido DAO, with a target price of around $4.0 expected for January. However, it is advisable to consider exiting the market once the price reaches $5 to avoid potential pitfalls.

References

https://www.tradingview.com/chart/zrsQqqcn/?symbol=COINBASE%3ALDOUSD

https://coinmarketcap.com/currencies/lido-dao/

https://www.withtap.com/blog/what-is-lido-dao-ldo

https://cointelegraph.com/learn/what-is-lido-liquidity-for-staked-assets

https://www.investopedia.com/spot-bitcoin-etfs-8358373#toc-how-spot-bitcoin-etfs-work