Lido DAO (LDO)
Most recent update: [ March 13, 2023]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or LDO, made available on the VirgoCX Platform, including an opinion that LDO is not itself a security and/or derivative.
What is Lido DAO?
When Ethereum transitioned to Proof-of-Stake, the minimum staking requirement of 32 ETH, which is out of reach for the majority of network users, became a flagrant downside. Lido DAO addresses this issue by offering non-custodial staking tailored not just for Ethereum, but for other proof-of-stake (PoS) blockchains as well such as Solana and Terra.
As a liquid staking solution, Lido DAO has become one of the most popular platforms for liquid staking, with over $13 billion in assets staked within a year of its inception. In addition to solving illiquidity issues associated with most PoS blockchains, Lido DAO provides a more accessible platform that removes high barriers to entry, such as complex validator setup and the costs associated with them.
Who is behind Lido DAO?
Lido DAO was co-founded in 2020 by Jordan Fish, Konstantin Lomashuk, and Vasiliy Shapovalo. The network’s testnet was released shortly after Ethereum’s Beacon Chain upgrade, Ethereum 2.0, as a way to ameliorate its staking services.
Both Lomashuk and Shapovalo source their expertise from the company P2P Validator, with the former being its founder and the latter its CTO. Their work at P2P Validator, which specialized in services for PoS blockchains, led to the creation of multiple third-party services for Beacon Chain, which were eventually regrouped under one umbrella known as the Lido DAO of today. Shapovalo brings more than ten years of software development expertise, while Lomashuk is equipped with a Ph.D in finance.
The Lido DAO project is backed by prominent names such as Andreessen Horowitz, Coinbase Ventures, and the Digital Currency Group.
How does it work?
To aid with liquidity on the Ethereum network, Lido DAO issues stETH, an ERC-20 token, for every staked ETH. This mechanism implies a 1:1 peg between the two. All staked ETH are entered into the Lido staking pool, which is a smart contract responsible for staking, minting, and DeFi. In exchange for the ability to withdraw staked funds at will, the platform charges a 10% fee on staking rewards, which are in turn used to compensate both the platform and its node operators. While there is no minimum staking requirement on Lido DAO, users will need a web3 wallet to engage with the network.
Currently, there is an estimated 54 Lido node operators spread across Ethereum, Polygon, and Solana, which are all PoS blockchains. Together, they use public validation keys to validate transactions that involve the staking of users’ assets.
The LDO Token and Tokenomics
LDO tokens are currently available for sale on multiple exchanges. The maximum supply is capped at 1,000,000,000 tokens, and as of March 10th 2023, the market cap for IMX amounted to US$1.9 billion. The current circulating supply of IMX tokens is 852,263,034, and it is expected to reach peak capacity around July 2024.
The initial allocation for LDO is broken down as follows:
- DAO Treasury: 36.32%
- Initial Lido Developers: 20.00%
- Investors: 22.18%
- Founders and Future Employees: 15.0%
- Validators and Signature Holders: 6.5%
The LDO token is purported to serve as a utility token for activities such as staking and voting. It can be used to reward DAO users and activities, as well for various types of network payments, such as bug bounties, grants, liquidity incentives, and more.
Since Lido DAO smart contracts are audited by Quantstamp and Sigma Prime, users on the network can enjoy a relative peace of mind in knowing that there are checks and balances in place. Further, while the smart contracts themselves may be subject to flaws or vulnerabilities, the bug bounty program encourages anyone to review Lido DAO’s open-source code, thereby creating an incentive to continuously heighten its security.
Ultimately, the Lido DAO team is well-regarded in the blockchain community for their technical expertise and commitment to building innovative solutions for decentralized finance (DeFi). The development team is composed of professionals with experience in finance, software engineering, blockchain technology, and other relevant fields.
Drawbacks and risks
Since LDO is a MiniMe ERC-20 token, it is more expensive to effectuate transactions with it since its security mechanism requires the network to constantly verify for the vote-transfer-vote exploit. The distributed custody aspect of the Lido DAO network also implies that staked funds are locked in smart contracts, which have keys that are managed by only 11 individuals.
Further, as an open-source code, the Lido DAO network stands the risk of smart contract bugs or even exploits. Due to Ethereum’s recent switch to Proof-of-Stake, the Lido Dao network could be subject to operational halts as developers continue to patch Ethereum’s deficiencies with each new discovery.
Finally, similarly to other Decentralized Autonomous Organizations (DAO), the Lido DAO network may lack accountability for activity on the network, and quasi-oligarchic dynamics may arise since voting power is determined by token ownership.
Before listing LDO on the VirgoCX Platform, VirgoCX performed due diligence on LDO and determined that LDO is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis includes reviewing publicly available information on the following:
- The creation, governance, and location of LDO and/or its primary development team;
- The supply, demand, maturity and liquidity of LDO; and
- Legal and regulatory risks associated with LDO.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30th 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario) and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
To learn more about the technology behind Lido DAO, check out these in-depth resources here:
- The official site of Lido DAO
- Coinmarketcap’s overview of Lido DAO
- Coingecko’s tokenomics overview of LDO
- Coinbase’s overview of Lido DAO, along with the relevant news and blogs related to LDO.
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