Launched in 2020, following the Ethereum 2.0 Beacon Chain's launch, Lido DAO quickly became a leading platform for liquid staking, providing a seamless and user-friendly solution for staking assets while maintaining liquidity.
Today, we will cover the following topics:
- About Lido DAO (LDO)
- How does Lido DAO work?
- Key Features
- Technical Analysis
- Why is LDO The Coin of the Week?
About Lido DAO (LDO)
What is Lido DAO?
Lido DAO (LDO) is a decentralized platform that offers liquid staking solutions, enabling users to stake their assets on various PoS blockchains while retaining liquidity. By using Lido, users can earn staking rewards and still use their staked assets in other financial activities such as trading, lending, and more.
Lido DAO aims to solve the liquidity issues associated with traditional staking, making it easier for users to participate in staking without sacrificing the flexibility of their assets.
Lido emerged during the preparation for Ethereum’s transition to a Proof-of-Stake consensus system, known as the Merge. The introduction of liquid staking by Lido made it possible for users to keep their staked assets liquid and usable, even if they were locked in the protocol.
This solution also allows participation with any amount of ETH, bypassing the 32 ETH minimum requirement for direct staking on Ethereum.
Dig deeper into Lido DAO whitepaper.
What is liquid staking?
Liquid staking in cryptocurrencies allows users to stake tokens for rewards while retaining liquidity.
Users delegate tokens to a provider, receiving liquid tokens in return, which can be used in decentralized finance (DeFi) activities. This process maintains the staking rewards and security of the original tokens.
Examples include Lido DAO, which offers tokens like stETH.
Benefits include enhanced capital efficiency, increased liquidity, and better yield opportunities.
However, risks such as smart contract vulnerabilities, price volatility, and custodial risk should be considered.
Liquid staking enhances asset utility while preserving staking rewards and network security.
LDO Token
LDO serves various roles within the Lido DAO ecosystem:
Staking
Participants can stake any amount of ETH, which is subsequently deposited onto the platform.
Minting
For each ETH staked, Lido mints stETH tokens on a 1:1 basis. These tokens serve as liquid ERC-20 representatives of the staked ETH.
DeFi Integration
stETH tokens can be utilized throughout the DeFi ecosystem, allowing users to earn additional yields without the need to lock up their staked assets.
Governance
LDO functions as a governance token, allowing holders to participate in the decision-making process of the Lido DAO platform. Token holders can propose and vote on changes to the protocol, influencing its development and operations.
How does Lido DAO work?
Lido's infrastructure is built around three key components: the participation group, st[token], and the DAO.
Participation Group
The Participation Group is a protocol that oversees deposits, participation rewards, and withdrawals, with a separate group managing these functions for each compatible network. This component ensures the security of funds and the proper operation of validators.
St[token]
The st[token] represents assets staked on Lido, reflecting the value of the initial deposit, participation rewards, and any penalties. For instance, in the case of ETH, this token is called stETH, representing staked ETH on Lido.
When users stake ETH, they receive stETH tokens, which are burned upon redemption. The balance of stETH tokens corresponds 1:1 with the staked ETH.
Token balances are updated daily based on oracle-reported changes in total participation. Lido uses three mechanisms to maintain stETH price parity:
- Users buy stETH when its price falls below parity and sell it for ETH, creating a natural financial incentive.
- Liquidity mining incentivizes investors to deposit both assets into the liquidity pool.
- The stETH token's desirable features, such as its tradability while earning participation rewards, make it attractive for lending protocols like Aave, fostering organic demand and supporting price parity.
stETH can be used similarly to ETH, allowing users to earn staking rewards while accessing various decentralized finance products.
DAO
The DAO is responsible for managing the Lido liquid protocol, overseeing the selection of node operators and configuring protocol parameters.
Lido DAO simplifies staking services for PoS networks, enabling users to delegate their assets to trusted validators for returns.
The protocol uses smart contracts to distribute tokens among 29 pre-approved validators. Validators share their node capacity in exchange for 5% of the participation rewards from ETH staked via Lido.
The distribution of participation rewards is as follows: 5% goes to the Lido DAO treasury, and 90% goes to stETH holders who staked through the Lido protocol.
The stETH token is tradeable and pegged to ETH's price. For example, staking 1 ETH with Lido yields 1 stETH in return.
Key Features
Lido DAO offers several advanced features that elevate the staking experience for users:
Liquid Staking
Lido provides liquid staking solutions that allow users to earn staking rewards without locking up their tokens, enabling them to maintain liquidity and participate in other financial activities.
Decentralized Governance
Lido DAO operates through a decentralized governance model, empowering LDO token holders to influence the platform's development and operations.
Validator Diversity
Lido selects a diverse set of validators to secure the network, ensuring decentralization and fair distribution of staking rewards.
Staking Insurance
Lido offers staking insurance to protect users against potential slashing events, providing an additional layer of security for staked assets.
Interoperability
Lido supports multiple PoS blockchains, allowing users to stake various assets within the Lido ecosystem.
Flexible Rewards
Lido allows users to earn staking rewards while maintaining liquidity, providing a flexible and user-friendly staking experience.
Technical Analysis
As per our previous market outlook, LDO has been trading within a rising flat channel marked in orange.
Currently, it is hovering around the lower bound of the channel, so we will be looking for trend-following buy setups on lower timeframes.
As long as the $1.3 support level holds, we anticipate a bullish continuation toward the $3.3 mark as a medium-term target.
Why is LDO The Coin of the Week?
For this week, we've selected LDO for its innovative approach to providing liquid staking solutions across multiple PoS blockchains.
Lido DAO's protocol addresses the liquidity issues associated with traditional staking, making it easier for users to participate in staking without locking up their assets.
Moreover, from a technical perspective, it is currently hovering around the lower bound of its rising channel, providing us with an opportunity to capitalize on the upcoming bullish impulse movement.
Also read more Coin of the Week articles.
Thanks for tuning in to this week's coin of the week! We appreciate your readership and enthusiasm for exploring the crypto landscape with us.
See you next week for another coin of the week! 🚀
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