Lido May Soon Reshape How Decisions Are Made Within Its Ecosystem

Lido is planning a major upgrade that could reshape how decisions are made within its ecosystem. A new proposal, LIP-28, introduced on May 8, aims to give staked Ethereum (stETH) holders the power to counter potentially harmful decisions made by LDO token voters.

Currently, only LDO holders can participate in proposals and ultimately decide on changes to the protocol. This is despite stETH holders being the ones who provide the liquidity that powers the protocol.

The proposed “Dual Governance” model would change that, offering a way for stETH participants to push back on proposals they find concerning—without exiting the protocol entirely.

This plan would involve a smart contract-based safeguard. If a proposal passes and stETH holders want to challenge it, they can lock their tokens in an escrow. Should the deposits reach 1% of Lido’s ETH TVL, a one-week delay is triggered in executing the proposal. If deposits reach 10% of the protocol’s ETH TVL, the measure is fully suspended.

Only when tokens are withdrawn and converted back to ETH will the proposal continue.

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This move could be pivotal in shifting the balance of power within Lido.

While LDO holders ultimately decide on proposals, stETH participants could use this measure to intervene if they deem a proposal to be largely unfavorable.

This is a significant threat that could force LDO token voters to reconsider proposals or adjust them to better align with the wishes of the liquidity participants.

This upgrade could also be key in decentralizing influence over the protocol further.

As highlighted by Flashbots strategist Hasu, this is potentially the “most important Lido upgrade ever.”

It remains to be seen how this proposal will be received by the LDO community and whether it will ultimately be implemented.

However, given the size and importance of Lido in the DeFi ecosystem—managing roughly 27% of all staked ETH—this move could redefine how major DeFi projects balance control between token governance and liquidity participants.