The central theses

• The Lido neighborhood is contemplating a brand new strategy to protocol decision-making dubbed twin governance.
• At present solely LDO holders can vote on choices; The brand new strategy would additionally give stETH holders a proper of veto.
• The plan additionally goals to solidify components of the Lido protocol by inserting them outdoors of the Lido DAO’s management.

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The Lido neighborhood is discussing a doable governance change that may leverage each of the protocol’s tokens.

All holders might have a governance position

The Lido neighborhood proposes a brand new strategy referred to as twin governance. It goals to resolve conflicts of curiosity between holders of staked ETH (stETH) and Lido (LDO) tokens.

The proposal first seeks to “introduce a dispute and backbone mechanism for perverse incentives” by giving each varieties of property a task in governance choices.

At present, solely these holding the LDO token have the suitable to take part in governance. Because of this LDO holders have collective management over most technical elements of the protocol. As such, they might probably band collectively to replace the stETH contract in a manner that exploits stETH holders.

stETH tokens are distributed to customers who deposit ETH and are meant to be used with DeFi providers. The brand new proposal would add an extra governance position for these property: stETH tokens would have veto and anti-veto powers, giving holders the power to counter the Lido DAO’s choices.

This strategy would create a “checks and balances” system discovered in lots of governments all over the world that depend on the separation of powers to forestall harmful choices from taking impact.

Along with introducing this twin voting system, the proposal goals to “cut back the scope of governance… by ossification.” Because of this the proposal would solidify a few of the parameters of the protocol – unchangeable even for the Lido DAO itself.

Nonetheless, ossification is not going to be speedy, and the proposal will initially deal with twin governance.

The plan is taken into account however not ultimate

Sam Kozin, Lido’s Lead Good Contract Developer, introduced an idea for twin governance on June tenth. The group has but to create a extra technical model of the proposal earlier than a vote takes place. No voting date has been introduced but.

The proposal was effectively obtained by Lido and associated circles. Lido co-founder Cobie (Jordanian Fish) specified that “LDO’s purpose must be to attenuate its personal leverage over time.” He added that this divestment will end in “the very best progress.” [and] Longevity potential.”

Some have prompt that the plan represents a wholly new strategy to DeFi governance. Hasu, a paradigm-based researcher who co-authored the protocol, referred to as it a “revolutionary proposal for lido finance and DeFi typically.”

Lido is slowly changing into a sufferer of its personal success as greater than 30% of the entire ETH provide has been staked by the protocol. This has raised considerations in regards to the energy the protocol might need over the Ethereum community itself.

The Lido neighborhood additionally thought-about capping the protocol’s share of ETH in Could to deal with this problem.

Disclosure: On the time of writing this text, the creator of this text owned ETH and a number of other different cryptocurrencies.

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