Lido Finance and Tokenomics of LIDO

Updated on 15 October, 2022 7:01 PM
1 min read

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    What is Lido Finance?

    Lido Finance is a liquid staking service for ETH, Polygon, Solana, and other crypto coins. Lido lets you use your staked assets to gain yield on top of yield without locking assets.

    A few weeks after the Ethereum 2.0 Beacon Chain went live, Lido Finance was launched in December 2020, to offer liquidity for staked assets based on Ethereum. Additionally, Lido now supports Terra (LUNA) staking, providing validators with extra revenue streams. Lido Finance makes it possible for more people to invest in Ethereum and Terra by permitting lower value staking.

    As even more people participate in the security of the blockchains, this inclusion aids in their further decentralisation. As a result, users, Lido Finance, and blockchains all benefit from this.

    How does Lido Finance work?

    As a substitute to locking up a stake, Lido Finance provides liquid staking. Simply put, Lido is paid a certain amount of ETH by users (or validators) who desire to own a stake in Ethereum. In exchange, Lido Finance provides customers with its 1:1 ERC-20 stETH coin, which is produced to represent the company.

    This service owns its own stake in Ethereum, which is made up of ETH that was pooled from the funds contributed by these validators and yields incentives. This is how Lido Finance enables people to make such little investments while still participating in a blockchain that demands a large contribution. Based on the amount of money each investor invested in Lido Finance, these benefits are subsequently distributed among them.

    Lido Finance charges a fee of 10% of each investor's profits, of which 50% are used to improve the platform and provide coverage and privacy for consumers.

    How Does Staking on Lido Finance Work?

    Users only need to connect their wallets, select their stake amount, and confirm on Lido. Since the assets are not locked in, the investor retains full control over them and can remove them whenever they choose.

    With this genuinely decentralised system, everyone can stake Ethereum and validators have complete flexibility. Lido Finance not only lowers the cost of earning passive money via staking, but it also lets validators use the staked ETH as it is being staked. By indicating that the validator's ETH tokens are staked, the platform, which owns the validator's ETH, is made more secure.

    In addition to cold hardware wallets like the Ledger Nano S and Ledger Nano X, Lido is compatible with hot wallets like MetaMask. Cold hardware wallets are said to be more secure than hot ones since they keep keys offline despite being connected to the internet.

    Tokenomics of Lido DAO Token (LDO)

    The Lido staking platform's native utility token is the Lido DAO token (LDO). It was created in December 2020 in conjunction with the Lido platform, and it has a maximum supply of 1 billion tokens, of which 24.5 million (or 2% of the total) are now in use.

    In the Lido DAO, the LDO tokens confer governance powers. The number of LDO coins a voter stakes in the casting contract determines their voting weight. The Lido DAO token carries out updates and makes decisions regarding variables including choosing oracles, appointing and dismissing node operators, and fee structures.

    Additionally, it may be exchanged on a number of sites, including DEXs like Uniswap (UNI), where stablecoin and cryptocurrency pairs are offered.

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