Lido DAO’s liquid staking token LDO pumps 15% on treasury proposal and OP token incentives
Liquid staking protocols have been having a moment, recently, and Lido DAO, the market leader in this crypto sub-sector is in the spotlight again this week.
The LDO token is currently up about 15% on the daily timeframe, and 33% over the past month.
There are two possible reasons for the daily surge – a DAO proposal and some Optimism collab news – which we’ll jump into in a minute, but not before a very quick refresher on what Lido and liquid staking actually is all about.
We covered this quite recently in one of our Apollo’s Alpha articles, where analyst Matthew Harcout delved into it in some detail, and what the Apollo fund has been investing in within the sector.
But a very quick explainer once more…
Like regular staking of crypto, liquid staking is the process of locking up funds to earn regular crypto rewards. It has, however, the added bonus of still being able to access the assets, or at least a derivative version of them, for use in other ways – for example within certain potentially lucrative DeFi activities.
As for Lido DAO, it’s the decentralised autonomous organisation behind the Lido liquid staking system and LDO is the protocol’s governance token. The token is used to vote on protocol parameters and govern the Lido DAO treasury.
There’s a reason or two for recent surges in this sector, which also include such protocols as Rocket Pool (RPL), Frax Shares (FXS) and SSV.
Firstly, there’s a huge Ethereum network upgrade looming in mid March, known as Shanghai, which is going to allow previously locked up Ethereum staking rewards to be withdrawn for the first time.
This, Harcout told us a couple of weeks ago, will improve the staking experience on Ethereum and will likely bring liquid staking protocols further into play across the crypto/Ethereum-holding community.
Even analysts from banking giant JPMorgan have predicted that not only will the Shanghai upgrade raise the Ethereum blockchain’s staking ratio in the medium term, but a large portion of staking will likely move to liquid staking protocols, such as Lido.
Another reason for the spotlight and surge, however, is the possibility that liquid staking protocols could actually be benefitting from the Securities and Exchanges Commission crackdown in the US on the centralised exchange staking (as a service) program that was being offered by Kraken. (Kraken continues to offer this kind of service in other jurisdictions, as do several other notable exchanges.)
It’s understood that the SEC views the type of staking services offered by exchanges as lacking transparency in terms of fund flow. And if the SEC continues to go hard on this area with other US-based centralised entities, then more and more crypto investors who like to earn passive rewards from stakeable cryptos could well be flocking to decentralised, block-explorer-transparent options like Lido very soon.
Lido DAO this week submitted a proposal to its members raising the question over whether it should sell or stake the US$30 million in ETH it currently has in its treasury.
The reason this is seen as providing further bullish momentum for the protocol is for the perceived benefits both actions could potentially bring.
If it were to sell the ETH, the DAO says the funds would be used to secure “additional runway” in current market conditions – a more defensive move to protect capital and decrease the DAO’s large exposure to ETH. Lido DAO also holds US$20.1 million in the DAI decentralised stablecoin.
However, the idea of staking the treasury Ethereum will surely also be seen as an attractive option to believers within the DAO who see a more bullish path for the crypto market playing out this year.
Lido DAO may, however, end up selling some of its ETH and staking the rest.
Lido DAO's governance token, LDO, rose as much as 18% Wednesday as its financial unit submitted a proposal considering what to do with the $30 million in ether in its treasury. @LedesmaLyllah reportshttps://t.co/xTywCZGr00
— CoinDesk (@CoinDesk) February 15, 2023
And here’s the other possible reason Lido DAO’s up today. The staking protocol has teamed up with one of the leading layer 2 blockchains for Ethereum – Optimism – with an incentivisation program to encourage stakers to move over to the Optimism network and stake there.
Part of the aim is to help increase Lido’s staked Ethereum token (stETH) presence across more of Ethereum’s ecosystem, including various blockchain layers.
The latest $OP token grant will provide an added bonus for users who stake their $ETH with @LidoFinance, move that staked #Ethereum to @optimismFND, and provide liquidity for select token pairs. https://t.co/62r3IDlm3j
— Decrypt (@decryptmedia) February 15, 2023
As NY-based crypto-media firm Decrypt reports, the Lido DAO has been granted 1 million OP tokens from Optimism as part of the initiative. The OP tokens will be used as additional rewards for users who follow these steps:
• stake their ETH with Lido
• move that staked ETH to the Optimism network
• and provide liquidity for selected token pairings.
The program, which you can read more about here, has now begun and will wind up in six months’ time.