Does Lido's Dual Governance Now Make It the Safest Place to Stake ETH? - Ep. 860
🎯 Summary
Podcast Summary: Does Lido’s Dual Governance Now Make It the Safest Place to Stake ETH? - Ep. 860
This episode of Unchained features Hasu (Strategic Advisor at Lido and Strategy Lead at Flashbots) and Vasilie Shabalov (Co-founder of Lido) discussing the recent implementation of Lido’s Dual Governance mechanism, which fundamentally alters its upgradeability and security posture.
1. Focus Area
The primary focus is the Lido staking protocol’s governance overhaul, specifically the introduction of Dual Governance as a dynamic time-lock mechanism designed to protect staked ETH holders (stETH users) from potentially harmful governance changes enacted by LDO token holders. The discussion centers on solving the principal-agent problem in upgradable DeFi protocols.
2. Key Technical Insights
- Dynamic Time Lock Mechanism: Dual Governance functions as a dynamic time lock, unlike static time locks which require impractically long durations for Lido due to withdrawal times. It starts with a short default delay but extends based on user signaling.
- Two-Threshold Escalation: The system uses two critical thresholds based on staked ETH deposited into the Dual Governance contract: 1% signals an escalation period (minimum 5-day delay), and 10% triggers a freeze (maximum 45-day delay), during which no governance proposals can pass, allowing all users to safely withdraw.
- Rage Quit Protection: If LDO holders refuse to roll back a contentious proposal after the freeze, dissenting stakers who signaled their dissent are automatically unstaked and exit the protocol, protected from the change.
3. Market/Investment Angle
- Security Premium: Dual Governance effectively removes the traditional trade-off between liquidity (offered by Lido) and maximum security (offered by non-custodial, immutable staking). This positions Lido as potentially the most secure staking protocol, even though it remains upgradable.
- Institutional Appeal: The enhanced security guarantees and robust governance risk mitigation are expected to make Lido significantly more appealing to institutional participants and security-conscious entities.
- Decentralization Roadmap Fulfillment: This implementation is framed as a major step in Lido’s multi-year decentralization roadmap, moving the protocol toward being a neutral, thin, and secure middleware layer.
4. Notable Companies/People
- Lido: The protocol implementing the Dual Governance system.
- Hasu & Vasilie Shabalov: Guests providing deep insight into the design rationale and technical implementation.
- Flashbots: Mentioned in relation to Hasu’s role, highlighting expertise in MEV and secure transaction ordering, relevant to governance security.
5. Regulatory/Policy Discussion
While not a direct regulatory discussion, the conversation touches on the governance risk that major protocols face. The speakers note that as DeFi matures and attracts larger capital (including potentially nation-states), the scrutiny on governance safeguards will increase, making Lido’s proactive approach a necessary risk management measure against evolving cyber threats.
6. Future Implications
The speakers believe Dual Governance is more than just a feature; it’s a principle that could be adopted widely across Web3. They hope the term will become colloquial for any system offering cryptographically verifiable power to users over the services they use, preventing unilateral changes like fee hikes or terms modification seen in Web2. This mechanism is seen as essential for protocols handling massive value in an era of increasing cyberattacks.
7. Target Audience
This episode is highly valuable for DeFi professionals, protocol developers, LDO token holders, institutional investors looking at staking solutions, and anyone interested in advanced decentralized governance design and risk management frameworks within Web3.
🏢 Companies Mentioned
💬 Key Insights
"I think this would be, you know, for between these products as Ethereum staking becomes unlocked, it will, you know, to a large degree, will be a competition between who can stake the most ETH, because you need to on the one hand optimize for the APY that you give to your users, and on the other hand, you need to optimize for liquidity when they want to withdraw because you have again regulatory-imposed withdrawal times that you need to service, right?"
"And I think this bridges the gap between security and liquidity, which in particular I think as we are starting to speak about kind of ETP ETF-like products..."
"That's more safety for them, like institutions and people and protocols as hold staked ETH as collateral, they will be more safe knowing that there is always a way to rage quit there is a governance attack."
"I'm generally a big proponent of the idea of optimistic governance. So, if you look right now in LDO, you know, even when a node operator is like rotated out of the node operator set, that is something that goes into an on-chain vote. Is that really like, you know, such a consequential decision... In my mind, the answer would be no, right?"
"It's not right for the staking protocol governance to have the right to assume the stake, like we shouldn't do like that."
"We didn't do much work here because like the whole premise of making a dual governance is considering that there can be governance compromise. So, we kind of assume that like, okay, if there is a compromise of LDO holders, can staked ETH holders still rage quit?"