Lido Finance Proposes LIP-28 to Decentralize Governance and Give Veto Rights to stETH Holders

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.

Lido Finance, the leading liquid Ethereum staking protocol, is introducing a new proposal to grant staked-ether (stETH) holders veto privileges over major protocol decisions.

The inclusion of stETH holders in critical decision-making is a major shift in governance as it places them in line with LDO stakeholders. At present, governance rights on the protocol are reserved exclusively for LDO tokenholders.

LIP 28 proposes a dual governance model which provides stETH holders with veto rights on important protocol changes. Although StETH holders can not implement proposals on their own, their veto power earns them a voice on protocol decisions. The proposal seeks to address issues about centralized governance within Lido DAO.

The proposal embeds a “dynamic” timelock contract that links governance decisions to their execution. This allows stETH holders to express their opposition by staking their stETH tokens into an escrow contract. If excess stETH is deposited in the escrow, the timelock the decision is extended and a “rage quit” system halts the implementation. This allows stakers to withdraw their tokens in opposition to the proposal which protects the unsatisfied users.

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 coincides with Ethereum’s spike triggered by the Pectra upgrade which fueled interest towards Ethereum native protocols such as Lido. Lido manages more than 25% of Ethereum’s staked assets,which demonstrates the influence of the protocol within Ethereum’s staking ecosystem. With the stETH holders into governance, the platform intends to align all stakeholders' incentives.

Market Impact of LIP 28 Proposal

Other players in Ethereum’s staking market include Rocket Pool and Frax Ether. If approved, LIP 28 could motivate other DeFi protocols to reconsider their governance approach to include all stakeholders. Ethereum developers and stakeholders have expressed their appreciation for the proposal, citing the importance of the idea for the platform.

LIP 28 is under discussion and a formal on-chain vote for it is expected soon. If passed, it could transform the governance approach in Ethereum staking protocols. As Ethereum continues to dominate decentralized finance(DeFi), the implementation of the proposal could have major ramifications on the industry.

Lido’s native token, LDO, saw a 8.66 % increase in the last 24 hours which indicates support for the proposal.