Lido Finance Introduces Dual Governance Model For StETH Holders
Lido Finance, Ethereum's largest liquid staking platform by locked value, has proposed a groundbreaking dual governance system that grants staked ether (stETH) holders veto power over critical protocol decisions. According to CoinDesk, this initiative, dubbed Lido Improvement Proposal (LIP) 28, aims to increase accountability and decentralization in Ethereum's staking ecosystem. The proposal comes as Ethereum has surged 30% following its recent Pectra upgrade, drawing renewed attention to Ethereum-native protocols.
Currently, only LDO token holders have governance rights within the Lido ecosystem, despite stETH holders representing a much larger portion of the ecosystem's value. The new model would establish a checks-and-balances system between protocol users and governance token holders, addressing centralization concerns that have persisted as Lido manages approximately 25% of all staked ETH on the network.
How The Dual Governance System Works
The proposed framework introduces a dynamic timelock contract between Lido DAO decisions and their execution. CryptoSlate reports that this system creates an opportunity for stETH holders to intervene when they strongly oppose a proposal. When disagreeing with a DAO decision, stETH holders can lock their tokens in a designated escrow contract for withdrawal.
The timelock mechanism triggers specific actions based on participation thresholds. When deposits reach 1% of Lido's Ethereum total value locked (TVL), a delay period begins automatically. If deposits grow to 10% of TVL, the proposal enters what CoinPush describes as a "rage quit" state, preventing any action on the proposal until the locked tokens are converted back to ETH.
This design gives stETH holders meaningful influence without forcing them to abandon the protocol entirely. Instead, it creates a pathway for the DAO to pause and reconsider divisive proposals when significant opposition emerges from stakers.
Market Impact And Industry Context
The proposal comes at a significant moment for Ethereum's ecosystem. According to DataWallet, Lido has grown to become the largest decentralized protocol with over $32.5 billion in total value locked (TVL) and commands more than 25% of the liquid staking market.
This governance shift coincides with Ethereum's Pectra upgrade, which activated on May 7, 2025. Decrypt notes that Pectra brings major improvements to staking flexibility, increasing the maximum staking limit from 32 to 2,048 ETH. CoinDesk reported that this change helps streamline operations for stakers who previously needed multiple validators to stake at scale.
The LDO token price has responded positively to the dual governance announcement, rising 6.5% in the 24 hours following the announcement, outperforming the broader crypto market. Crypto.news shows stETH trading at $2,708 as of mid-February 2025, reflecting continued demand despite market fluctuations.
Broader Implications For DeFi Governance
The Lido proposal represents a significant evolution in DeFi governance models. KuCoin points out that governance structures are critical differentiators among liquid staking providers, with some protocols like Rocket Pool already emphasizing decentralization as a key advantage.
Industry analysts suggest this move addresses concerns about Lido's market dominance. According to Unchained, while Lido's absolute ETH staked has grown in 2025, its market share has declined from over 31% to approximately 28.5% as competitors like EtherFi and Renzo gain traction.
The LIP-28 proposal remains in its discussion phase, with a formal on-chain vote expected in the coming weeks. If approved, BitRss notes that the change could shift how governance is distributed across Ethereum's staking ecosystem, potentially setting a precedent for other DeFi protocols seeking to include users, not just tokenholders, in decision-making.
Related Reading on DAO Times
For readers interested in learning more about DAO governance tools and solutions, DAO Times offers a comprehensive guide to DAO tooling solutions. This resource provides valuable insights into governance frameworks, voting mechanisms, and treasury management tools that organizations like Lido use to balance decision-making power among stakeholders.
