Lido is a user-friendly, decentralized platform operated by Lido DAO. It was launched in December 2020 with the aim of offering liquidity for staked assets on Ethereum. By staking on Lido, a user can stake a fraction of 1 ETH on Ethereum 2.0 and still earn passive income through rewards.
Additionally, Lido now allows for staking on Terra (LUNA), meaning more income channels for validators. By allowing for lower value staking on Ethereum and Terra, Lido enables more people to stake in these blockchains. This inclusiveness in turn helps the blockchains remain decentralized as more people contribute to its security. Thus, this is a win-win for users, Lido, and the blockchains.
Lido offers liquid staking, which is an alternative to locking up a stake. Put simply, Lido receives an amount of ETH from the users (or validators) that want to have a stake in Ethereum. In return, Lido gives them its minted representative ERC-20 coin, known as stETH, at a value of 1:1 to ETH. The platform has its own stake in Ethereum, consisting of ETH pooled together from the invested money from these validators, which generates rewards. This is how Lido can allow users to invest so little, while still investing in a blockchain that requires such a high stake. These rewards are then shared out among the investors, based on the stake they put into Lido. Lido collects a fee in the shape of 10% of each investor’s rewards, of which 50% goes toward building insurance and security for its users and improving the platform.
Although staking is one of the simplest ways to make a passive income, self-staking is far from simple and requires technical know-how. This is another aspect that Lido facilitates. With Ethereum 2.0, the validator must set up and run a validator system on their computer. In addition, that system has to run 24/7 in order to not be penalized for validator absence. Lido, on the other hand, simply requires users to connect their wallet, choose the amount to stake, and confirm. The investor keeps complete control of their assets and can withdraw them at any time since they are not locked in.
If a validator decides to withdraw their staked tokens, they can do it in one of two ways:
This is a truly decentralized system that allows validators full freedom and opens up Ethereum staking to everyone. Not only does Lido make it more affordable to gain passive income from staking, it also allows validators to continue using the staked ETH while it is being staked. stETH signifies that the validator’s ETH tokens are staked, thereby adding a layer of security for the platform, as it holds the validator’s ETH. However, the validator can lend, store, spend, trade, or use stETH for collateral, all while still earning daily staking rewards. Additionally, the rewards from the stake appear in the validator’s wallet daily, thereby ensuring continuous profitability.
Lido is compatible with both hot wallets such as MetaMask, and cold hardware wallets such as Ledger Nano S and Ledger Nano X. In terms of their security, cold hardware wallets are considered the safer option, as hot wallets remain connected to the internet, while cold ones store keys offline. However, in terms of cost, hot wallets only charge transaction fees, while cold hardware wallets take a percentage of the staking rewards. It is therefore important to tally all the costs, as Lido also takes a percentage of the staking rewards.
There are many platforms that offer the same services as Lido, including centralized ones such as Coinbase. These platforms also allow investors to stake through them in a very simple manner and with very little ETH; however, the investor’s wallet is also tied to the platform. This can be a positive as there is no need to integrate an external wallet, but it also means more centralization. Ultimately, the decision on whether to go with a centralized platform or a decentralized one depends on what an investor’s priorities are:
The Lido DAO token (LDO) is a native utility token to the Lido staking platform. Created in December 2020 alongside the Lido platform, it has a max supply of 1 billion tokens, of which around 24.5 million (2%) are in circulation.