LSD (Liquid Staking Derivatives), is a product of the POS consensus mechanism. It essentially means staking your tokens (like ETH) to earn rewards while providing you with a staking certificate (like stETH or wstETH) to keep your assets liquid.
In this track, there has always been a gem, which is the project we are going to study today - Lido @LidoFinance
👉 What is Lido?
Simply put, the threshold for ordinary users to participate in Ethereum staking is too high (at least 32 ETH), Lido provides a platform to gather scattered ETH from everyone to help them stake, while giving you the stETH certificate, which allows you to receive staking rewards from Ethereum daily.
👉 What does Lido's project structure look like?
As shown in the figure below:
After upgrading to v2, Lido abandoned the previous traditional structure of "User - Lido Platform - Node Operators" and updated to a modular management scheme, in which there are several roles.
1. Stakers
As long as you are an ETH holder, whether you are a small individual, a large holder, or a specialized institutional group, you can be classified as a staker.
2. Lido DAO
This DAO organization is a community formed by Lido token holders, who have voting rights to decide on issues related to protocol fees, node operators, module audits, oracle allocation, and more.
3. Staking Router
The staking router is a smart contract, with each module registered under its management.
(1) Maintain the registration and suspension of each module
(2) Management of Validators (including rewards and penalties)
(3) Allocate different shares and different reward rules to different modules
4. Staking Module
The staking module mainly undertakes the staking needs of the protocol, with many node operators and validators in each module. Each module has its own staking share allocated by the staking router and different reward distribution mechanisms.
Currently, Lido's staking module is mainly divided into 3 parts:
(1) Curated Module: Lido's main staking module, mainly consisting of previously audited node operators. According to my investigation, there should be 32 node operators, bearing most of Lido's staking demand. Currently, the maximum staking share of the Curated module (the proportion of ETH that this module can stake) is unlimited. 90% of the income generated by this module belongs to the validators, 6% goes to the module, and 4% is submitted to the Lido treasury.
(2) SimpleDVT Module: DVT (Distributed Validator), because typically Ethereum's validators operate from a single node, if a validator makes a mistake or fails to act, they will be punished by Ethereum. DVT changes the validator from a single node to multiple nodes, reducing the probability of being punished. Why is it called Simple? Because the coordination complexity among these nodes is lower than traditional DVT.
In the SimpleDVT module, there are super cluster nodes and ordinary cluster nodes.
Currently, the SimpleDVT module has a maximum staking share of 4%. 90% of the income generated by this module belongs to the validators, 8% goes to the module in super cluster nodes, and 2% is submitted to the Lido treasury. In ordinary cluster nodes, 6% is allocated to the module, and 4% is submitted to the Lido treasury.
(3) Community Staking Module (CSM): CSM allows any qualified node operator to participate in Lido's staking, using collateral as security while providing a reward and penalty mechanism for community node operators. This mechanism helps attract more communities or individuals to participate while maintaining validator performance and meeting protocol requirements. Currently, the CSM module has a maximum staking share of 1%. 90% of the income generated by this module belongs to the validators, 6% goes to the module, and 4% is submitted to the Lido treasury.
5. Oracle
This role is responsible for collecting the state synchronization information of Ethereum's "execution layer" and "consensus layer" and generating reports of the latest state for the Lido contract. Since these two layers on Ethereum cannot communicate directly, Lido uses data from these two layers to check which validator has issues or who to reward, etc. Currently, there are 9 Oracle roles in the project to achieve decentralized data transmission from Ethereum to Lido.
👉 What does the process of giving one ETH to Lido look like?
1. I deposit 1 ETH, and the contract immediately generates 1 stETH for me.
2. The staking router allocates resources, giving my ETH to a node operator in the Curated module, who combines my ETH with others to form groups of 32 for validator a, and stakes it on the ETH chain.
3. One day later, the rewards from ETH staking begin to calculate, and the Oracle accurately determines that validator a is working effectively and distributes the staking rewards to a.
4. Node operators aggregate the earnings of these validators, and the module aggregates the earnings of the node operators, of which 4% is submitted to the treasury, and 6% is distributed by each node operator to the respective validators. The remaining 90% is determined by contract code to be given to users holding stETH.
5. One day later, my 1 stETH becomes 1.00002 (for example).
6. I propose to withdraw my ETH, wait in line for a while, and the Lido contract will exchange back to stETH and destroy it.
👉 What is the difference between tokens stETH and wstETH?
Due to Lido's mechanism, your stETH balance changes daily; today I have 1, and tomorrow I have 1.0002. stETH reflects the rewards you receive through daily changes in token balance. This mechanism is called rebase, and this model of stETH is accepted by Curve and Yearn. However, due to some DeFi protocols (such as Uniswap and 1inch) requiring the provided token quantity to be fixed, Lido provides a fixed-balance liquid staking token wstETH, allowing stETH to be easily wrapped into wstETH and used.
wstETH does not update the balance daily but uses an implicit share system to reflect the staking rewards you receive. You might hold 1 wstETH and after a long time exchange it at Lido, finding it has become 1.01 ETH.
👉 To summarize
Lido is now the leader in the Ethereum liquid staking track and has also promoted the liquidity of stETH and wstETH. Currently, Lido's ETH TVL accounts for 28.2% of the entire liquid ETH, which is unique in the market. At the same time, as the upstream of the re-staking track, Lido plays an irreplaceable important role in the entire Ethereum ecosystem.
👉$LDO Market Price Prediction
Market predictions can be discussed from two aspects
1. Fundamentals
As shown in the figure, we can see Lido's income and profit over the past few years.
The blue bar represents income, and the line represents profit. Here we can see that although LDO has always been the leader in Ethereum staking over the past few years, the project has been in a state of spending and losing money, as it previously spent money promoting the liquidity of stETH, but finally turned a profit in 2024. The reason investors doubted that LDO token holders cannot enjoy profits is that the project itself was losing money.
Based on the figure's income and profit analysis, as long as LDO's Ethereum staking amount does not undergo significant changes, the project is expected to stabilize and achieve good profit growth by 2025. The chart predicts earnings of about $50 million in 2025, while the project's total FDV is $2 billion, leading to a projected P/E ratio of about 40 (assuming FDV remains unchanged).
Lido's staking volume has always been the number one in the Ethereum ecosystem, holding an absolute advantage, and stETH is also widely used in various re-staking projects.
Lido tokens are basically in a fully circulating state, with not much unlocking involved.
2. Technical Aspect
After the last round of sharp decline, the price has been fluctuating between 0.8 - 0.9, then surged to the resistance level of 2.4, and when the price touched 1.5, it immediately surged, with recent overall performance better than most tokens. The first major resistance level is around 2.7, and the second is around 5.
As seen in the figure below, the current form is quite similar to the previous round before the rise, and trading volume has seen a significant increase recently.
Opportunities:
1. Predicting project earnings will gradually improve
2. Positive news for Ethereum ETF staking; Lido DAO was previously classified as a general partnership, which may attract funds from ETF inflows (although the probability is low, it may still be hyped).
3. Good technical performance, with prices at a low level
4. The LDO community has included the goal of providing staking rewards to $LDO token holders in its objectives for 2025.
5. The Ethereum upgrade in March this year primarily upgraded the staking module, which may cause sector hotspots.
Risks:
1. All funds flowing in from the approval of Ethereum ETF staking will be staked on compliant exchanges like Coinbase.
2. The token empowerment of LDO token holders has been delayed
3. Project earnings are below expectations
I personally am currently building a position on $LDO . (This article was written on 25.1.16)
Last time the market dropped, I built my position! Luck is rolling!
