On Lido DAO, their liquid (liquid) staking protocol ensures that you stake the tokens at validators into a network staking contract. Liquid staking means that your tokens are still liquid (tradable) even though you stake them.
Users can stTokens (stETH e.g.) staken and receive stake proceeds. If they want to access their money again they can unstake these tokens, after which the tokens are burned.
These stTokens reside at the execution layer (validate transactions for gas fees and reinvest for more staking revenue), making them tradable. You can use stTokens for multiple functions.
Traditional forms of DeFi staking are also available on this DAO.
Lido DAO is a DAO, as the name implies. A DAO is a decentralized autonomous organization, meaning they are not centrally run. Everyone who owns LDO tokens get the chance to vote how the DAO will develop.
If you join the Lido DAO as a node then you must be an experienced operator who has the technical know-how to keep everything running smoothly, leaving little chance of errors and fines (slashes), which would reduce revenues.
Lido was founded in 2020 by Vasiliy Shapovalov, Flo(rian Liss) and others. Their team has expanded considerably over the years and is highly skilled in applicable studies.
They began as a staking protocol on Ethereum, but later added other networks such as Solana and Polygon Matic. They are also working with Polkadot and Kusama, although this seems to have been on the back burner.
Over time, they have increasingly left the governance to a DAO, which it is now fully.
This DAO has quickly emerged as the leading DeFi platform.
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In traditional proof of stake networks, you buy coins and stake them, getting a fixed amount of interest in additional coins per year. You can't use these funds for anything else unless you unstaket and sell the coins.
Liquid staking does allow you to receive additional rewards. The st-token gives you a reward for staking, but you can still use these funds to tap into new favorable trading opportunities.
In solo staking, all sorts of things can go wrong (slashing) and you often have to stake large amounts of money to participate (e.g. 32 Ethereum).
Stake on an exchange, such an exchange often gains great influence over the network they stake for, whereas the intent of blockchain is mostly decentralization.
With liquid staking, you not only get proceeds from your staked tokens, but you can also use them for other purposes, such as in promising DeFi projects, thus maximizing your staking proceeds.
At Lido DAO, you invest in stETH, among other things, which is a staking derivative. So you don't have to stake yourself, which is very important in the case of Ethereum, because you need to have technical knowledge, good hardware and software and also 32 ETH. Staking has thus become a lot easier and cheaper.
The safety of Lido DAO is promoted as much as possible by a number of things:
The DAO makes the important decisions and considers the risk factors.
Regular security audits and a bug bounty for extra security, in case of a bug in a smart contract.
Carefully selected validators to minimize the risk of slashes (and therefore lower yields).
Allowing staking at different validators.
Reducing the risk of third-party cessation.
A compromise is needed between a central and decentralized exchange. A completely decentralized exchange is directionless. A central exchange has a lot of influence. A DAO also lets the people who bet their money determine how things will proceed. That's kind of fair.
The functions of the DAO:
Monitoring key parameters of the liquid staking protocol.
Picking professional nodes.
Distribute funds to enable research.
Fees saved for keeping Lido DAO safe.
The Lido DAO token (LDO) is the governance token of Lido DAO. Whoever owns it may vote on the future of the DAO.
Lido DAO is based on Aragon software, which is made to build and control a DAO with governance tokens.
Lido designed its own software, Easy Track, to manage governance, such as low fees and reducing voting fatigue.
It is going too far to discuss all this. If you read through their technical specifications, you get the idea that they have very meticulously considered every possibility of technical problems with the protocol, smart contracts, other networks, nodes and much more to the point where an error becomes increasingly unlikely.
Yet it is still possible. That is why they have come up with protocols for that too to solve very exceptional situations.
The bug bounty of up to $2 million is enough reward to get people interested in communicating flaws in their protocols and smart contracts.
The concept is therefore very well thought out.
It is obvious that the usual DeFi players are participating in this ecosystem. 1Inch, AAVE, Maker DAO, UniSwap, as well as other networks are in their system.
Other major players include Coinbase, CoinGecko, Atomic Wallet, Brave Browser, CoinMarketCap, too many to mention.
To expand Lido Finance's ecosystem even further, they have set up LEGO (Lido Ecosystem Grants Organisation) to invite and support more and more players to join their network in mutually beneficial collaboration.