Lido Finance Proposes New Governance Model to Address Decentralization and Accountability

Lido Finance's new proposal seeks to address the decentralization and accountability in the Ethereum staking ecosystem.

Lido Finance is introducing a new proposal, LIP-28, to integrate staked-ether (stETH) holders into major protocol-level decisions with veto privileges. This move is set to broaden governance participation in the Ethereum staking ecosystem.

The proposal, which is currently open for discussion, aims to modify the critical governance processes to engage stETH holders in key protocol-level changes. It builds upon the existing structure of Lido governance, which is currently focused on LDO stakeholders for proposals and stETH holders for vetoes.

How stETH Holders Can Halt Proposals

The proposal suggests incorporating a “dynamic” timelock contract that links governance decisions to their execution. To express their opposition to a proposal, stETH holders can stake their tokens into an escrow contract.

If excess stETH is deposited in the timelock, it will extend the time for the decision and a “rage quit” system will come into play, allowing stakers to withdraw their tokens in opposition to the proposal.

Dual Governance: Coming SoonYears in the making, Lido DAO contributors are proud to present an outline for the upcoming release of Dual Governance featuring design & code choices, parameters, deployment & rollout.https://t.co/Iu7J1cOlcr

Lido’s governance model aims to equally support the interests of LDO token holders and stETH holders. This dual governance approach aims to create transparency and fairness in governance decisions.This proposal aims to prevent any party from monopolizing the protocol’s development, which is crucial because Lido controls a substantial amount of Ethereum’s stETH.

The proposal comes as Ethereum’s price spikes following the Pectra upgrade. The recent price surge has sparked renewed interest in Ethereum native protocols like Lido.

Greater Involvement of stETH Holders

Lido manages over 25% of Ethereum’s staked assets, highlighting the protocol’s influence in the ecosystem. With the integration of stETH holders in governance, the platform seeks to align the incentives of all stakeholders.

Other prominent players in Ethereum’s staking market include Rocket Pool and Frax Ether. If approved, LIP-28 could encourage other DeFi protocols to adopt similar approaches to governance.

Ethereum developers and stakeholders have expressed their thoughts on the proposal, recognizing the importance of the idea for the platform. As LIP-28 is open for discussion, a formal on-chain vote is expected soon.

If passed, it could drastically alter the governance paradigm in Ethereum staking protocols.

With Ethereum's unyielding dominance in decentralized finance (DeFi), the implications of this proposal on the broader industry are significant.

Lido’s native token, LDO, price is up 8.66% in the last 24 hours which could be a sign of support for the new proposal.