Ethereum Staking Provider Lido Proposes LDO Token Utility Boost: Analyzing Impact and Risks

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The staking solution provider for Ethereum, Lido, has put forth a proposal to introduce a staking mechanism for its native LDO token in an effort to improve its utility and financial sustainability. According to the proposal, posted on Lido’s governance forum on May 17, the staking program will enable token holders to stake their LDO tokens in exchange for a share – worth approximately 20-50% – of Lido’s future earnings.

The proposal, written by a Lido community member identified as Lidomaxi, suggests that staking rewards will be paid out weekly. However, this doesn’t mean recipients can use their rewards right away. Instead, earned LDO tokens will be subject to a 6-month vesting period designed to better align token holders’ interests with the success of the Lido protocol.

Furthermore, the proposal introduces a new minimum limit for Lido’s insurance fund, set to 6,000 staked ETH (stETH), or around $10.9 million at the current exchange rate. Stakers will be collectively responsible for maintaining the fund at this level, acting as “insurance providers of last resort,” the proposal explained.

In the proposal’s summary, Lidomaxi recognized the growth Lido has experienced as a protocol in recent years, stating that it has evolved “from an early stage DeFi protocol to the dominant leader in the liquid staking space.” However, despite Lido’s success, LDO token holders do not directly benefit from the revenue generated by the protocol, and the LDO token has no direct utility. Lidomaxi wrote that these issues are a principal concern for current and prospective token holders. The proposal aims to “catalyze a discussion and propose a solution to the utility and value-accrual issues facing LDO.”

Several community members have expressed their support for the proposal. One user pointed out that “there’s definitely a good case to be made for something like this.” Another user argued that it’s essential to link the success of the protocol to the LDO token and that revenue sharing is the way to do so, as demonstrated by many other protocols.

The price of the LDO token increased after the proposal was published last Wednesday but has since mostly traded lower. From a peak of $2.56 last Wednesday, LDO had fallen nearly 20% to $2.06 at press time on Monday. This development shows that while there’s optimism for the proposed staking mechanism, it’s still a novel concept, and the market remains cautious, highlighting the delicate balance between utility and value-accrual concerns.

Source: Cryptonews

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