Lido voters reject the limited increase in Eth2 – The Defiant’s key move

Four days after the vote, Lido, the Ethereum network’s largest liquid stacking protocol, appears ready to reject calls to limit its own growth.

Less than half of the votes cast were in favor of limiting Lido’s participation in Ethereum. Among the participants, who held more than 99% of Lido’s governance token, LDO, voted not to impede the protocol’s growth.

Stacking service

The regime’s proposal, titled “Should Lido Consider Self-Restriction?” A non-custodial stacking service for professional investors P2P’s CTP, designed by Vasiliy Shapovalov.

Posted on the protocol portal on June 24, a successful vote will bind the protocol “to reduce the flow of inward partnerships in any size, form or intensity”, which will be determined in the second round of voting.

The vote will help determine how a key protocol to Etherium’s proof-of-stack chain will continue to evolve. It also provides insights into the dynamics of decentralized governance, where important decisions are kept for debate within a wide community of stakeholders, although in reality it often ends up being some large token holder who participates and calls shots.

Lido was responsible for about one-third of all stacked ether on Monday, according to data compiled at Dune Analytics. Ethereum is being converted to a proof-of-stack consensus algorithm, requiring blockchain node operators to submit cryptocurrencies instead of spending energy to secure transactions.

Lido allows ETH holders to share their cryptocurrencies through the platform and earn stacking rewards, while Lido delivers actual operation of an Ethereum node to operators in the ecosystem, of which 29 were as of Tuesday.

Risk of attack

The concern is that the lido nodes may be able to adjust. If this is the case, the higher the percentage of stacked ETHs owned by them, the greater the risk of an attack on the Ethereum network.

This is the second major administrative proposal to draw serious debate in recent weeks aimed at limiting the scope for bad actors to abuse the protocol’s influential market share.

Prominent Etherians have called on Lido to limit its growth. They include the founder of Ethereum Vitalic buterin And Danny Ryan, a researcher at the Etherium Foundation, who sparked a blog post last month titled “The Dangers of LSD.”

The “LSD” in question is Lido and similar protocols, such as the liquid stacking derivative issued by Rocket Pool. Lido lets users get a derivative token called Stacked ETH, or stETH, in exchange for stocking ETH with the platform. The advantage is that STETH can be used as if it were ETH in the DeFi protocols.

However, Ryan warned that if any protocol introduces most of the ether, the network would be at risk for censorship claims and was designed to prevent other abuses of power blockchain technology.

Cartel activities

Protocols like Lido could become exclusive, Marco de Magio, a professor at Harvard Business School and a former researcher at Terra Labs, wrote in a blog post in 2020.

“The effects of the network will emerge, where further use in the vicinity of a specific liquid stacking protocol increases liquidity and usability in parallel, which further drives the adoption of that solution compared to its competitors,” he writes. “As a result, we can expect that only a limited amount of liquid stacking protocol can coexist in a meaningful way.”

The potential monopoly of Lido stacking carries the risk that LDO holders force “censorship, multi-block cartel activity. [miner-extracted value]Etc., or otherwise [validator] Removed from the set, ”Ryan wrote.

‘I am against any restriction on LIDO to lead the liquid stacking market.’

Benjikohen

In the Protocol Governance Forum, what Lido users have pointed out indicates that what they have said is a very dangerous possibility, however: centralized exchanges, such as Coinbase and Kraken, enter the void left by a self-limiting Lido.

“I am against any restriction on LIDO to lead the liquid stacking market,” Benjikohen wrote. “If you don’t agree, consider how you feel instead of Coinbase or Kraken.”

Ryan Burkman argued that self-limitation was a reverse decision. And, in any case, “the estimated worst-case scenario of a coinbase derivative has been taken as highly unlikely and, if it does occur, is like a relatively healthy duplicate,” they wrote.

Another user, Easy, said the approach was unreasonable.

Not the solution

“Why give them the opportunity (and power) that comes with absolutely catching up?” They wrote. “Is the risk that has been introduced (and the overall loss of decentralization) worth it? The fastest-growing protocols are those that can benefit the economy of scale. “

Kobe agrees that giving others the opportunity to play – which he describes as “altruism” – is not the answer. But change must come before believing in Lido’s exclusive power.

“I see how limiting growth before users’ ability to exit (for example) is not an unreasonable suggestion in situations, ”he writes.

Misunderstanding

Adam Kochran, a partner at Cinneamhain Ventures, said such fears are based on misconceptions about what Lido is.

“The rhetoric around this idea continues to come from rival stakeholders, who do not understand Lido’s systems, and who misinterpret the real concerns of some in the Etherium community.” “Lido is arguably not a stacking entity, but instead, a reward incentive and protocol level for a stacking entity to be able to provide stacking as a standard service.”

Apparently for the failure of the proposal, attention will probably turn to another topic of debate: changing the governance structure of Lido to make it harder to abuse the protocol.

Ryan warns of the same “cartelization”, co-authored by Sam Kozin, a key developer of Lido, co-authored a solution called “dual rule” that would allow SETH holders to veto governance proposals approved by LDO holders.

“We don’t think these dual regulatory mechanisms should apply to all decisions, it should only apply to decisions that could potentially harm partners,” Kozin said in a Twitter space.

Lido community

And on Tuesday, Lido party members proposed a governance update on the protocol blog that would create an objection-only period at the end of any DAO vote. They argued that this would prevent a speculative attack where a corrupt actor, with 5% LDO, the required amount for a quorum, made a proposal without the support of the Lido community and changed it in his favor just before the time of voting. The end

“This is an important step in tightening Lido DAO’s governance process and mitigating protocol capture or damage,” the team wrote.

[UPDATED 6/28 @12PM to correct number of Lido node operators]

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