Lido is a liquid staking protocol. Users deposit ETH, Lido stakes it with validators on Ethereum, and the user receives a token called stETH that represents the staked amount. The token can be traded or used in DeFi while the underlying ETH keeps earning staking rewards. Lido launched in December 2020 and is run by a DAO. The project's site is lido.fi.
Lido used to offer staking on other networks too, including Solana. The DAO voted to wind down the Solana product in 2023, and the protocol now concentrates on Ethereum.
The Problem Lido Solves
Ethereum runs on Proof of Stake. Running your own validator requires 32 ETH, a machine that stays online, and some technical skill. Staked ETH is also not instantly available: leaving the validator set means waiting in an exit queue. The ethereum.org staking guide compares solo staking, staking services and pooled staking.
Liquid staking pools deposits from many users. That removes the 32 ETH minimum and gives each user a token they can sell at any time, without waiting for a validator to exit.
How Lido Works
When you deposit ETH, the Lido contracts mint the same amount of stETH to your wallet. The pooled ETH is assigned to validators run by node operators.
- Rebasing: stETH balances are updated once a day. As validators earn rewards, the number of stETH in your wallet rises slightly. If validators were penalized, it could fall.
- wstETH: a wrapped version with a fixed balance. Instead of the balance growing, each wstETH becomes redeemable for more stETH over time. Many DeFi apps and layer 2 networks use wstETH because a changing balance is hard for contracts to handle.
- Fee: Lido keeps 10% of staking rewards. That fee is split between node operators and the DAO treasury. Users receive the remaining 90%.
- Withdrawals: since May 2023, stETH can be redeemed for ETH through the protocol. Requests enter a queue, and the wait depends on how many validators are exiting.
The yield is not fixed. It moves with Ethereum's issuance, transaction fees and the total amount of ETH staked across the network. The Lido documentation describes the contracts and the current operator set.
Node Operators
Lido does not run validators itself. For years it relied on a curated list of professional operators approved by the DAO. It has since added other routes, including a Community Staking Module that lets independent operators join by posting a bond, and modules based on distributed validator technology, where several parties run one validator together.
stETH in DeFi
stETH and wstETH are among the most widely used collateral assets in DeFi. They are accepted on lending markets such as Aave and paired with ETH in pools on Curve and other exchanges.
A popular but risky strategy is looping: deposit stETH as collateral, borrow ETH, stake it for more stETH, and repeat. This multiplies the staking yield and also multiplies the losses if the stETH price drops against ETH or borrowing costs rise.
When stETH Traded Below ETH
stETH is not pegged to ETH by a guarantee. It is a claim on staked ETH, and its market price depends on buyers and sellers.
In May and June 2022, before withdrawals existed, stETH traded several percent below ETH. The Terra collapse, then the troubles at Celsius and Three Arrows Capital, forced large holders to sell, and there was no way to redeem stETH for ETH directly. Borrowers who had looped stETH faced liquidation.
Ethereum's Shapella upgrade enabled staking withdrawals on April 12, 2023, and Lido added redemptions the following month. Since then, the gap has usually been small, because traders can buy discounted stETH and redeem it.
The LDO Token and Governance
Lido is governed by holders of the LDO token. They vote on which node operators are admitted, how fees are set, contract upgrades and how the treasury is spent.
Two points are often misunderstood. Holding LDO is not the same as staking with Lido, and LDO does not automatically pay holders a share of staking rewards. It is a governance token whose price moves with the market.
Because LDO holders control a protocol that holds other people's ETH, Lido has developed a dual governance system that gives stETH holders a way to delay or block DAO decisions they object to.
Centralization Concerns
Lido is the largest liquid staking protocol on Ethereum. At times it has accounted for close to a third of all staked ETH, although its share has declined from that peak as competitors grew.
The concern is simple. If one protocol directs too much stake, a bug, a governance attack or pressure on its operators could affect Ethereum itself. Proposals for Lido to cap its own share were voted down by LDO holders in 2022. The newer operator modules and dual governance are the project's answer, and the debate continues.
Risks to Understand
- Smart contract risk: a bug in Lido's contracts could put deposits at risk.
- Slashing risk: penalties on Lido validators are shared across stETH holders.
- Market risk: stETH can trade below ETH, which matters most if you must sell quickly or have borrowed against it.
- Governance risk: LDO voting is concentrated among large holders.
- Regulatory risk: the legal treatment of staking services differs by country and is still changing.
Nothing in this article is financial advice.
Key Lido Facts
- Launched: December 2020
- Network: Ethereum
- Staking tokens: stETH (rebasing) and wstETH (wrapped)
- Fee: 10% of staking rewards
- Withdrawals: available since May 2023
- Governance token: LDO
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The Lido DAO page shows the live LDO price, market cap and chart. The stETH page lets you compare the stETH price with ETH to see whether it trades at a discount.