[DRAFT][GF: Phase 1 Proposal] Lido

Thank you for writing this. I could not have said this any better.
I support your view and would even ask Lido and any project calling themselves DAO, is it still DAO when 3 addresses can decide the the final outcome.

Snapshot

this snapshot is an perfect example for that, should we call this still a DAO ? Are they working to counter this, I am not saying abolish DAO but may be apply logic that Gitcoin does with their donation, cant they apply the same logic to amplify voting power of users with less token.

It is proven that just token based gov is not ideal, it does give confidence on the outcome of DAO decision, at least in cases like that. Thankfully OP is trying to fix this with its two pillar gov model.

Not to name but few days back there was a vote from another project, DAO based, where a single address voted to stop the chain to liquidate a user position. Just because Lido is saying, and may be they are not bad actor, I would not trust them. Not until they do something to fix their broken DAO structure.

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Fully support this! Having wstETH on Optimism will strengthen the bonds between Ethereum and Optimism.

IMO, the issues regarding stETH’s dominance are very real but to be resolved at the Layer 1 level. Regardless of how that is resolved, as the most liquid LSD, stETH liquidity on Optimism will be a significant benefit to Optimism itself, so I’ll be voting Yes.

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I agree with @polynya on this one. The dominance of stETH in L1 staking is real and concerning but I dont see how incentivising its use on Optimism will make it worse. It increases stETH liquidity on optimism and doesn’t directly incentivise more staking on Lido. It will be a good addition to Optimism.

It would also be ideal to have the OP foundation and a trusted OP delegate to be signers in the multisig to ensure the OP is not used for governance or anyone uses other than the ones mentioned in this proposal.

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Reading back my comments above I realize that I didn’t specify how I believe this proposal will contribute to the problem of Lido’s dominance on L1.

At the moment demand for stETH is reduced and it is therefore trading below the price of ether. This means that if people want to get some they are better off buying from the market rather than adding their ether to Lido’s pool and obtaining it ‘fresh’.

This means that not much new ether is flowing into Lido and therefore their share of the total staked on the Beacon Chain is not really increasing as it was previously. They have effectively been paused before crossing the 1/3 line. If this situation continues indefinitely they will only ever be a potential threat and not a realized threat to Ethereum’s legitimacy.

The proposal here is asking for 1,000,000 OP to add incentives for people to use Lido’s LSD on Optimism. This will increase the demand and increase the value of their staked product. If demand increases enough then it will again be financially viable for people to obtain stETH directly from Lido by adding their ether to the pool, rather than buying it from the market. This will start the increase of their share again and bring us closer to the crisis point on L1.

I don’t know whether our OP incentives would be enough to push demand for the LSD past the point where more ether flows into Lido again, but it will certainly have some effect. If you recognize that Lido’s dominance on Ethereum is a concern then surely taking action that will actively increase this is not in our best interests. If the legitimacy of Ethereum is compromised, where does that leave Optimism in the long run? I don’t see another L1 that we could ‘migrate’ to, and considering how closely aligned Optimism is in terms of Ethereum Equivalence I’m not sure we’d even attempt it.

TL:DR; If we incentivize Lido’s LSD on Optimism, it will increase the demand and may restart the inflows of ether into their pool, hastening their rise past the 33% line. It is therefore in Optimism’s best long term interest not to do so, despite the fact that it would increase our TVL.

Our position may be equivalent to the shepherds in the classic Tragedy of the Commons scenario, each dApp and rollup is financially incentivized in the short term to make use of Lido’s LSD to increase our TVL, but if everyone does that then demand for stETH increases, Lido’s dominance of L1 increases, Ethereum is no longer perceived as having the decentralized legitimacy it once had, without it’s fundamental advantages less people are drawn to build on and use the ecosystem and everything loses value in the long run.

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Appreciate your opinions and there is value in having all views present.

However, this last post is an inconsequential point.

The Lido DAO’s budgets for incentives and rewards programs have been upwards of 4.5M LDO monthly (e.g.: april, june), with overwhelming majority geared towards stETH.
Depending on markets and price, this amounts to between $3M and $22M in incentives monthly.

The OP allocation for LM, at current prices, would be between $500k and $600k, to be distributed over many months (proposed 6).

As such, if we take the 6 months proposed and these current prices, it could represent an increase anywhere between 3.6% and 0.5% to the current incentives program.

I don’t think it is fair to argue that such a small increase in overall incentives will single-handedly “increase the demand and restart the inflows of ether into their pool, hastening their rise past the 33% line” (and that worry itself has, in turn, been clarified by Izzy above).


Again, the purpose of this GF proposal is to ultimately help Optimism users, protocols and DAOs have good and easy access to the most lindy and liquid ETH liquid staked derivative, strengthening OP’s DeFi ecosystem.

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You’re right of course that our OP would represent only a tiny fraction of your budget for incentives, it probably wouldn’t be enough to make the difference between your dominance continuing to rise or not… but it is the bit we can influence.

I am under no illusions that Optimism can stop or even significantly delay your progress, but we can chose not to contribute to it. That way if, as I’m predicting, this all becomes a massive drama in a few months, then at least Optimism’s reputation won’t be tarnished by having helped bring about the mess.

In a best case scenario, other dApps and rollups will do the same, which actually might end up slowing you down enough that that some kind of solution (maybe along the lines of the separation of block creation from Lido discussed above) might be implemented before anything comes to a head. If the risk to mainnet’s perceived legitimacy can have been mitigated before you get too big then everyone wins.

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I’m not saying that stETH incentives on Optimism won’t increase demand for Lido, or that it doesn’t matter. The correct way to address this on Optimism’s end would be to approve similar proposals by Rocket Pool, StakeWise etc. Where are they?

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In that case, would you consider withholding your support for this proposal, at the very least until until we are able to balance out the negative externalities we’d be responsible for by supporting equivalent incentives for other liquid staking providers.

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It’s up to the other LSD providers to submit equivalent proposals - when they do, I’d be happy to vote for their proposals. If anything, voting For would pressure competing LSDs into expediting their proposals. I’m open to withholding, but don’t see adequate reason to do so given the overall situation.

Lido is great! Only problem is how much ETH they hold

lido is good project but their control over eth is worrying

Thanks for your perspective and useful insights as always polynya.

Myself (a Rocket Pool community member) and Langers (GM of Rocket Pool) have drafted a grant proposal requesting $OP to support liquidity mining programs for rETH in the Optimism L2 ecosystem. We would really welcome your support, and any feedback you might have on the proposal too.

You can find the rETH grant proposal here: [Draft] [GF: Phase 1] Rocket Pool.

It is currently awaiting feedback in the discord under gov-temp-check also.

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Wow Polynya, your powers of prophesy are really on point!


On the Lido issue I think we’re probably just viewing the potential public harm of Lido differently, I guess if we’re likely now to be funding at least one other LSD then Optimism won’t be seen as purely siding with the threat. I share your hope that other minority staking protocols like StakeWise also raise proposals.

I still think that voting against helping Lido’s liquidity incentives with this proposal is the right choice, and hope that others do the same. Part of my interpretation of the Optimistic Vision that positive impacts should be rewarded is that the reverse is also the case: negative impacts should not be rewarded. Multiple much more influential and involved Ethereum contributors than me have laid out the risks of negative impacts that Lido represents. I believe our role here is to listen to the assessments from unbiased sources rather than the proposal’s creators who will benefit directly from Lido’s growth being unchecked, and use our votes to take the only small action we can to stand for what is best for the ecosystem at large.

If your view differs from that then I guess I’m unlikely to be able to convince you.

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Going through the feedback above, I’m thinking about these doubts and risks particularly on the centralized staking situation, which is a layer 1 issue that affects the Optimism Network in the worst case. Particularly in Lido, I’m attentive in the lastest governance proposals (self-limiting isn’t being approved, and status of dual token proposal).

How about being a bit more meticulous (both Lido and OP governance) about reducing the amount of OP tokens (lets say 500k) and keeping the same expected period (6 months) and see what impact these services and stability have when the Merge finally happen and so on.

I’m passing this same idea to the Rocket Pool proposal.

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Staking is key to the security of Ethereum > Optimism. General concerns re centralization are valid and need to be targeted from the overall Ethereum community. However, this proposal establishes liquidity on Optimism, enables Optimism users & especially small Eth holders to participate and benefit from staking rewards, and potentially other apps to leverage this yield stream. On top, the proposal includes matching co-incentives. We strongly support this proposal and will similarly support RocketPool’s proposal.

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This has to be a difficult decision, from OP gov side I am in favor of this proposal as our goal is to support any project that can possibly bring users/liquidity and Lido does have a good proposal.

What MinimalGravitas said is truly justified as I do see Lido as a risk to main chain security, please dont mention their DAO voting, and I support and will support in way as I can to fight them but as a delegate I am in favor or them.

One suggestion and would like to hear other opinion too, looking at Mean-Test, do they need 1M OP token? They are well know project with enough funding and revenue of their own, is it just me or we can request Lido to reduce the number of token request.

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Thanks for the comments. We ofc totally agree with you that stETH being available and liquid on Optimism will just strengthen OP’s DeFi product suite and ecosystem (a new sustainable yield source for users, a composable base money lego for other protocols to integrate and benefit from, etc).

Regarding the OP allocation:

  1. As you saw, these are tokens that are going to be 100% given to Optimism DeFi users via the LM program. None of them are for Lido nor for grants nor for expenses nor for anything else other than distributing them to the community.
  2. Furthermore, this allocation is supporting stETH on optimism but many other things too. It’s supporting general liquidity and trade volume on Optimism plus three important Optimism DEXes (Uniswap, Curve, Velodrome) as all OP tokens will go towards their LPs.
  3. Finally, Lido will also incentivize on its own, alongside these OP rewards (which as measured in a previous post on this thread, are super important for Lido but small). This double incentivization will just bring more TVL, users and opportunities to DeFi on Optimism.
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Not a fan of LM, I would not support this proposal if its not for stETH on OP chain.
Regarding token, again, I request you to consider reducing the number of token requested to 500K as Lido is well established project with a user base and revenue generating stream 1M is little high.

500K would be enough to give you a jump start.

these are tokens that are going to be 100% given to Optimism DeFi users via the LM program

I dont know why you have mentioned this as from where I see this statement, its giving me less confidence in your proposal. Just because you are giving 100% to OP DeFi users does not add value.

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Is there a reason this never went to vote? Not sure if I missed something…