A version of this article appeared in our The Decentralised newsletter on August 19. Sign up here.
Lido’s market share has fallen from 32% to 24% since 2023, when its dominance of the liquid staking market inspired claims it was approaching , monopoly status.
But co-founder Vasiliy Shapovalov has a plan to reclaim the ground it has ceded to competitors by offering “low-risk staking” to institutional and high-net-worth users.
Shapovalov detailed the plans at last week’s inaugural call for Lido token holders, as the protocol’s share of the liquid staking market hit its lowest point in over four years.
The problem, as Shapovalov sees it, is that Lido’s developers missed a massive opportunity while attempting to assuage critics.
Three years ago, Ethereum researcher Danny Ryan penned a warning cheekily titled, “The Risks of LSD,” meaning liquid staking derivatives.
“In the extreme, if an LSD protocol exceeds critical consensus thresholds such as 1/3, 1/2, and 2/3, the staking derivative can achieve outsized profits,” Ryan wrote — profits that create a perverse incentive to censor certain transactions.
Around that time, Lido was responsible for about 32% of all staked Ether, just shy of a “critical consensus threshold.”
Ryan’s tone was measured, but the conclusion was damning. After all, the whole point of crypto is to create censorship-resistant finance.
“I recommend that Lido and similar LSD products self-limit [market share] for their own sake,” he concluded.
Lido took steps to appease its critics. It introduced a feature known as distributed validator technology, and another that allowed home stakers to run validators through the protocol. It grew the number of operators from about three dozen to more than 300.
All the while, competitors like restaking protocol Ether.Fi and Binance’s Ethereum liquid staking token ate into Lido’s market share.
“Lido failed to ride the wave of restaking,” Shapovalov said on last week’s call. Instead, developers focused on improving Lido “in ways that don’t bring much growth in short and medium term, like dual governance and community staking.”
The moves burnished Lido’s image, but failed to bring growth, according to Shapovalov.
As a result, Lido Labs, the company behind the protocol, recently laid off 15% of its workforce.
The new institutional push comes as the worlds of DeFi and TradFi collide, with more and more asset managers looking to invest in Ethereum and stake it for yield.
US regulators have signalled they’ll take a hands-off approach when it comes to liquid staking providers. Lido’s stETH token should win over users with its deep liquidity compared to competitors.
Shapovalov said he sees a forthcoming version of the Lido protocol as a win-win-win for Lido, high-net-worth and institutional stakers, and the node operators they often hire directly. That version of Lido is currently being tested.
But time is of the essence: any day, the Securities and Exchange Commission could approve Ethereum exchange-traded funds that offer staking rewards. When that happens, even more institutional money is expected to rush to staking services.
“Timing is pretty important here because it’s going to take under a year, I think, until this wave of stake is over,” Shapovalov said.
Top DeFi stories of the week
This week in DeFi governance
PROPOSAL: Solana validators consider Alpenglow upgrade
PROPOSAL: Gnosis DAO considers increasing maximum Gnosis Pay cashback reward to 8%
VOTE: ZK Nation votes to provide ZKsync Guardians with 8.5 million ZK tokens to defend ‘cypherpunk values’
Post of the week
Gwart on how investors think of valuations in the crypto industry.
This is roughly the methodology used for developing comps in crypto:
“Justin Sun paid $6 million dollars for a banana taped to a wall so if I tape a banana to a wall it could be worth $6 million and it should be worth *at the very least* $10,000 in the future”
— Gwart (@GwartyGwart) August 15, 2025
Aleks Gilbert is DL News’ New York-based DeFi correspondent. Got a tip? Email at [email protected].
