Lido: Aragon Contract Secures Ethereum Liquid Staking Service
“We were incredibly surprised by the power and security of the Aragon ACL - when setting up Lido, it saved our development team more than six months of development time” - Victor Suzdalev, Lido core governance team.
Lido provides a simple and secure way to earn rewards on the Ethereum Beacon Chain, without the need to run or maintain hardware. As a liquid staking service it secures approximately $7.1 billion of value locked as of July 2022.
With so much at stake (pardon the pun), Lido set up an Aragon DAO from the outset in order to community-manage this critical protocol for the Ethereum ecosystem.
Today, Lido is one of the most complete implementations of AragonOS, using the full Aragon suite, as well as building their own tools on top of the open source framework. Let’s dive into the details.
What does Lido do?
Founded in late 2020, Lido is a liquid staking service that allows you to stake your ETH in exchange for stETH, a staking derivative. Staking is an action asset-holders take on Proof of Stake chains to secure the network. By staking your assets, you’re putting your funds in a contract that runs validators. Think of staking as putting away your money to earn a yield on it, like an investment.
The problem with staking is once your assets are staked, they’re locked away. But, with Lido’s liquid staking approach, you get something in return for your staking: a staking derivative. This derivative is a representation of the tokens you staked, and can be used in DeFi for borrowing, lending, and depositing.
This liquid staking approach solves many problems:
- You can stake ETH without needing the minimum 32 ETH to do it on your own.
- You don’t need to maintain validator infrastructure.
- Your risk of getting slashed is reduced, because your stETH is spread across validators, rather than locked with one.
- Your token isn’t locked, meaning you can still earn yield and borrow/lend with stETH. When staking on your own, your token is locked.
Lido has radially increased access to staking in the Ethereum ecosystem, because it gives ETH holders with less than 32 ETH the ability to stake their assets.
How does stETH work?
stETH is the staking derivative of the ETH you deposit in Lido. For each ETH you stake, you receive one stETH in return. stETH is minted when you stake ETH and burned when you unstake it.
What is Lido DAO responsible for?
The goal of the Lido DAO is to maintain and improve the Lido protocols.
Some of the Lido DAO’s responsibilities include deciding on key parameters for the protocol and executing protocol upgrades. For example, the DAO community has control over levers such as changing the fee that Lido takes from staking rewards, or changing how the income from that fee is distributed between treasury, insurance fund, and node operators. This means the key decisions that govern how the protocol works are fully decentralized and directly in the hands of the DAO community, with no middlemen or multisigs in the process.
How is the DAO governed?
The Lido DAO uses the LDO token to vote on decisions. They use token-weighted voting, meaning the more tokens you have, the more voting power you have.
The strategic decisions affecting the protocol are voted for on-chain using AragonOS. Meanwhile, allow-listed operational decisions (such as making regular payments to contributors) are executed on-chain inside EasyTrack, an optimistic governance tool built by Lido. We’ll cover more on EasyTrack below.
How does Lido use Aragon?
Firstly, Lido uses Aragon for Lido DAO. Voting is used so that the community can directly govern and change the parameters (levers) of the protocol; Finance app is used for one-time payments; Tokens app is used for vesting schedules; and Agent app is used to interact with external contracts.
Secondly, the Lido protocol itself is an Aragon app. stETH leverages the Aragon ACL (Access Control List) for powerful permission management. Overall, this means that the entire total value locked of Ethereum on Lido is running through Aragon contracts, thanks to Aragon’s security.
“We were incredibly surprised by the power and security of the Aragon ACL - when setting up Lido, it saved our development team more than six months of development time” - Victor Suzdalev, Lido core governance team.
What has Lido built on top of Aragon?
While Lido started in December 2020 with the standard set of AragonOS functionalities, the team gradually added new mechanisms to improve and safeguard governance due to Lido’s huge value.
Firstly, the team built EasyTrack, an optimistic governance mechanism to more efficiently pass uncontentious proposals. With EasyTrack, operational proposals automatically will pass, unless they are challenged. This reduces the need to vote on every decision.
Secondly, the team implemented their own notification system for voters, which has raised voting participation levels (an average of 5.7% of tokens voting, higher than many other DeFi protocols).
They’ve also implemented two-phase voting, a safeguard against malicious attacks. In two-phase voting, there’s a general voting phase of 48-72 hours, followed by a 12-24 hour timelock, where you can only cast or change your vote to “no.” This prevents a voter from executing a vote by adding all their tokens at the very end, when all other voters expected the vote to fail.
You can follow along with what the Lido team continues to build on top of Aragon’s open source framework in the Lido DAO github.
If you would like further assistance building your DAO, you might want to check out our DAO Experts Program and discover unique service provider solutions for your needs.
Further Resources
Blog: https://blog.lido.fi/
Site: https://lido.fi/
FAQ: https://research.lido.fi/t/welcome-to-lido-dao/7
Forum: https://research.lido.fi/
Github: https://github.com/lidofinance
Whitepaper and documentation: https://docs.lido.fi/