Lido proposes dual governance upgrade to empower stETH holders in decisions

Lido’s governance community is reviewing a new proposal to give staked Ethereum (stETH) holders more influence in protocol decisions.

The May 8 proposal, dubbed Lido Improvement Proposal 28 (LIP-28), introduces a Dual Governance framework.

Presently, only LDO token holders can vote on changes to the Lido protocol. This gives them complete control over decisions that affect everyone in the ecosystem, including those who stake ETH and receive stETH in return.

While stETH holders are essential to the platform’s success, they lack any formal way to oppose or influence DAO proposals.

The DeFi protocol’s proposal aims to grant stETH holders a more active role in protocol decisions, especially in cases where proposals passed by LDO token holders may be considered contentious.

Commenting on the proposal, Hasu, the strategy lead at Flashbots, described it as the “most important Lido upgrade ever.”

Lido is Ethereum’s largest liquid staking platform, controlling around 27% of the total ETH staking market. The protocol allows users to stake ETH with validators and receive stETH in exchange. This stETH can then be used in DeFi apps, offering users flexibility and liquidity.

How Lido’s Dual Governance model works

The proposed system adds a timelock mechanism between DAO proposals and their execution.

According to the proposal, this delay creates an opportunity for stETH holders to respond if a decision could negatively impact them. They would do so by locking their stETH, wstETH, or withdrawal NFTs into a special escrow contract.

Once deposits in the escrow reach 1% of Lido’s Ethereum total value locked (TVL), a delay period begins. If deposits grow to 10% of TVL, the proposal enters a “rage quit” state. This means no action can be taken on the proposal until the locked tokens are converted back to ETH.

This model gives stETH holders a meaningful voice without forcing them to abandon the protocol entirely. It also allows the DAO to pause and reconsider divisive proposals.

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