Lido is a liquidity pool pledge solution. Lido allows users to bet on the PoS public chain with compound returns while participating in on-chain activities such as lending and trading, with no minimum deposit or maintenance infrastructure required. ETH2.0, Terra, Solana are currently supported, and may be extended to other POS public chains in the future.

Take Ethereum 2.0 as an example. For pledors, they can pledge any amount of ETH to a Lido contract account, and Lido will distribute the user a corresponding amount of stETH (an ERC-20 token). The stETH balance will be updated at 24:00 UTC each day to ensure that stETH and ETH on the Beacon Chain are the same amount, so as to achieve daily real-time access to pledge income. The pledgee gets 90% of the proceeds from the ETH pledge on the beacon chain.

Whenever 32 ETH is aggregated on an Ethereum smart contract, the DAO selects a new validation node from the list of validation nodes. The deposit contract is then invoked to assign 32 ETH to the authentication node. At present, there are 9 verification nodes, including P2P Validators, Stakefish, blockscope, etc. They are selected by Lido DAO after verification and are responsible for obtaining benefits by deposing ETH in ETH2.0 in 32 pledge contracts. Validation nodes bear hardware costs and bandwidth costs, and they currently receive 5% of the total revenue. The last 5% of the income is controlled by Lido DAO, which is currently fully distributed to the insurance fund. The insurance fund is mainly used to compensate users' profits and even their principal in the event of punishment of ETH2.0 verification.

Because the balance of STEH will change every day, which is not conducive to the combination of some DeFi protocols, Lido also introduced the encapsulated version of STEH wstETH, which will not change the balance of the encapsulated wstETH. However, the benefits during encapsulation continue to accumulate and will be recalculated when stETH is unsealed.

stETH is fully used in DeFi, so that users can maintain the stability of ETH2.0. The ETH pledged by the user (stETH in fact) can still be used in each DeFi app, which makes Lido truly provide a "liquidity pledge solution" : the user can participate in the pledge with almost no loss of liquidity. Because of stETH's liquidity moat and associated network effects, stETH's collateral derivatives in ETH will likely be "winner-takes-all". Thus, stETH has the potential to replace ETH in many use cases, perhaps even entirely. At the moment, stETH only needs to be integrated with the three main lending products -- Maker, Aave and Compound -- so it's not much different from ETH. We expect this process to happen at the latest when the transfer function of beacon chain is turned on (with stETH to retrieve ETH), and whether it can happen earlier depends on market confidence in ETH2.0, participation level and Lido's continued efforts.

< SPAN class="ql-author-58030660 qL-size-12 ">LDO is an optimized ERC-20 token. The main use case is for Lido Dao governance.