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Liquid Staking

The Road to Trustless Ethereum Staking

On December 1, 2020, Ethereum initiated its transition to a proof of stake (PoS) system by introducing the Beacon Chain. This implementation’s high capital, illiquidity, and operational requirements created solid incentives for delegated staking. As this is not a protocol-native feature—it left a vacuum for third-party providers to fill—which was rapidly taken by centralised exchanges.

Recognising the potential threat to Ethereum's sovereignty, Lido pioneered the concept of decentralised staking pools and later led to its current market-leading position. After opening up the registry through the V2 Staking Router, Lido is closer to driving a more inclusive, open, and transparent platform. It’ll keep building on its core mission to make staking simple, as secure as possible, and keep Ethereum decentralised and censorship-resistant.

The path to long-term sustainability

Beyond the initial OTC deals (Paradigm; Dragonfly) to fund the protocol development, Lido DAO's plan is to promote long-term resilience through a sustainable business model.

Revenues post-merge have been growing steadily through the additional priority fees and MEV rewards from the Execution Layer. This revenue growth trajectory is projected to continue, amplified by the gradual uptick in network activity.

Simultaneously, there’s been a significant investment towards developing a structured framework to manage Lido DAO's resources proficiently. This framework was designed to effectively correspond with operational and long-term requirements, primarily emphasising enhanced visibility and control over operating expenses and ensuring diligent monitoring of LDO token issuance.

The next natural progression lies in utilising non-income revenues derived from low-risk treasury investments to support expenses and directly contribute to research and development. However, there were no explicit rules nor delegates with authority sourced from LDO token holders to take specific actions that could help manage the treasury.

In the past, Stakehouse Financial has polled individual policies to token holders. However, this method inadvertently added responsibility to LDO holders, demanding more bandwidth to scrutinise the proposals in depth.

Responding to this need, Lido token holders have voted to establish a Treasury Management Committee. This committee has been entrusted with developing broad principles to guide treasury management. Empowered with authority from token holders, the committee will execute these principles to manage Lido's treasury effectively.

karpatkey will contribute to steer this crucial initiative

After being elected as one of the members of the Treasury Management Committee, we’ll be leveraging our experience and network to actively push for the establishment of stETH as Ethereum’s reserve currency. We’ll capitalise on this asset’s rebasing, fungibility, and composability properties to drive demand and strategically deploy liquidity in the DeFi markets.

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