Lido has emerged as Ethereum’s community-elected staking pool to counter centralized exchanges (CEXs). With the evolution of Ethereum 2.0, it is poised to become the DeFi protocol with the highest total value locked (TVL).
Business Overview
Lido Finance operates as a staking pool service for Proof-of-Stake (PoS) blockchains, currently supporting Ethereum 2.0 and Terra, with plans to expand to Solana and other PoS chains.
- TVL: Over $2.8 billion, comprising $1.75 billion in ETH and $1.1 billion in LUNA.
Funding: Completed two rounds:
- December 2020: $2 million from Semantic Ventures, ParaFi Capital, Terra, and others.
- April 2021: $75 million (21,600 ETH) from Paradigm, Three Arrows Capital, and other top-tier investors.
Core Mechanism
- For Stakers: Users deposit ETH into Lido’s smart contract to receive stETH (a liquid staking derivative), which accrues daily staking rewards at 90% of the beacon chain yield.
- Node Operators: Validators (e.g., P2P Validator, Stakefish) manage ETH deposits, earning 5% of rewards.
- Insurance Fund: Captures the remaining 5% to cover slashing risks.
👉 Explore Lido’s stETH integration
Competitive Edge
Lido vs. DeFi Competitors
- Market Dominance: 70+% share in ETH staking derivatives.
- Integration: stETH is supported by major DeFi protocols (e.g., Curve, Aave, Yearn).
Lido vs. CEXs
- Liquidity: stETH/ETH pools offer deeper liquidity than CEX-issued derivatives (e.g., BETH).
- DeFi Composability: Enables yield stacking (e.g., stETH in lending markets).
Risks
- ETH 2.0 Delays: Beacon chain withdrawals remain locked until 2022.
- Smart Contract Vulnerabilities: Audited by Sigma Prime but not risk-free.
- Governance Centralization: Early deposits controlled by an 11-of-11 multisig.
Valuation
- Revenue Stream: 10% of staking rewards (currently allocated to insurance/node operators).
Metrics:
- P/S (fully diluted): 20–40x.
- Circulating P/S: ~2x (extremely undervalued).
Future Outlook
- Expansion: Terra and Solana staking, plus Aave integration.
- ETH 2.0 Adoption: Potential to become Ethereum’s largest staking pool.
FAQ
Q1: How does Lido ensure stETH’s peg to ETH?
A: Daily rebasing and deep liquidity pools maintain parity.
Q2: What happens if a validator is slashed?
A: The insurance fund covers losses, though extreme cases may exceed coverage.
Q3: Can stETH be used in DeFi?
A: Yes—stETH is integrated with Curve, Aave, and more for additional yield.
👉 Learn about Ethereum 2.0 advancements
Conclusion
Lido’s liquidity moat and community backing position it as Ethereum’s decentralized staking standard. As ETH 2.0 progresses, expect Lido’s TVL and influence to grow exponentially.
Disclaimer: This content is for informational purposes only and does not constitute financial advice.