Lido Proposes to Staking the Lido Protocol Token to Boost Utility and Sustainability

The Ethereum staking provider Lido has proposed a staking mechanism for its native LDO token in an effort to boost the utility and financial sustainability of the token.

According to the proposal, posted on Lido’s governance forum on May 17, the staking program will enable token holders to stake LDO in exchange for a share – worth approximately 20-50% – of Lido’s future earnings.

The proposal is written by a Lido community member who goes by the name Lidomaxi.

Under the proposal, staking rewards will be paid out weekly, but that does not mean recipients are free to use their rewards right away. Instead, earned LDO tokens will be subject to a 6-month vesting period designed to better align token holders’ interests with the success of the Lido protocol.

Additionally, the proposal introduces a new minimum limit for Lido’s insurance fund set to 6,000 staked ETH (stETH), or around $10.9 million with today’s exchange rate.

Stakers will be collectively responsible for maintaining the fund at this level, thus acting as “insurance providers of last resort,” the proposal explained.

In the summary of the proposal, Lidomaxi recognized the growth that Lido has seen as a protocol in recent years, saying it has grown “from an early stage DeFi protocol to the dominant leader in the liquid staking space.”

“Despite Lido’s success, LDO token holders don’t directly benefit from the revenue generated by the protocol and $LDO has no direct utility. These points are a principal concern for current and prospective token holders,” Lidomaxi wrote.

He added that the proposal aims to “catalyze a discussion and propose a solution to the utility and value-accrual issues facing LDO.”

Community in favor

Commenting on the proposal, several community members appeared to be in favor of it, with one user saying “there’s definitely a good case to be made for something like this […].”

“I agree that it’s unquestionably important to tie the success of the protocol to the LDO token. Revenue sharing is the way to do that, as so many other protocols have shown,” another user argued.

The price of LDO rose as the proposal was published last Wednesday, but has since largely traded lower.

From a peak of $2.56 last Wednesday, LDO had fallen close to 20% to $2.06 as of press time on Monday.