Lido is under attack from all sides: it shut down many public chain services and is not welcomed in the Ethereum ecosystem

Author: Chloe, PANews
Just as Lido was criticized by the Ethereum community for being too monopolistic and refusing to agree to jointly sign a binding proposal with several staking service providers to control the ETH staking ratio below 22%, Lido then cut off its own business and successively cut off the businesses of several other blockchains such as Polkadot, Solana, Polygon, etc. What is Lido’s intention with this move?
Polkadot and Solana have all withdrawn, leaving the outside world in a state of confusion
On October 17, Lido Finance community member kentie published a discussion proposal, suggesting that Lido services on Polygon be shut down, with the goal of becoming a native ETH liquidity staking service provider, and avoiding the risks of a smaller total locked value (TVL). The proposal to terminate Lido services on Polygon also directly pointed out that the current situation is actually very worrying.
Although Lido’s total locked value (TVL) on Polygon is approximately $86 million, the Lido DAO only collects $116,863 in fees per year on Polygon. In addition, Lido also awarded 450,000 LDO to Shard Labs, a liquidity staking solution provider (Shard Labs introduced Lido to Polygon, allowing users to stake MATIC tokens in a decentralized manner), as compensation for achieving the 3% milestone of the staked MATIC market share.
According to the high salary structure proposal put forward by the Shard Labs team, an additional 150,000 LDO tokens
It will soon be distributed to Shard Labs to achieve the milestone of 4% of the staked MATIC market share. The total cost of the two events is 600,000 tokens.
Not only is there a cost issue, but Polygon’s recent technical upgrade on Lido has caused a vulnerability. Polygon’s technical problems will also bring reputational risks to Lido. And as Polygon migrates to a newer token (Polygon Lab previously announced its new native token POL, replacing the original native token MATIC), and is undergoing a years-long technical architecture innovation, the chain still faces greater uncertainty.
Polygon is not the only company that has experienced staking exits this year.
Mixbytes, a smart contract auditing company that partnered with Lido in March this year, announced that starting from August 1, Lido will no longer provide technology and development for Polkadot and its canary network Kusama, and on March 15, it will not accept any new $DOT into the Lido protocol.
MixBytes is a DeFi application developer that assisted Lido in establishing liquidity staking services on Polkadot and Kusama. In the proposal at the beginning of the year, Kosta Zherebtsov, head of product at MixBytes, believed that the decision was made due to several challenges, including market conditions, protocol growth, capacity limitations, and adjustments to the company's strategic priorities.
Solana followed half a year later. On September 4, P2P Validator, the technical team responsible for the development of Lido on Solana, disclosed the current operating status to the community, explained the current profit and loss situation, and proposed a fundraising proposal to Lido DAO. The initial expectation of the cooperation was that both parties would complement each other's strengths and enhance each other's position in the cryptocurrency community. Unexpectedly, Solana invested more than $700,000 in Lido, mainly for development and maintenance, but the revenue so far is only about $220,000, with a loss of $484,000.
The P2P Validator proposal also clearly gives the community two options. First, Lido DAO will provide a total of $1.5 million in funding over the next year to cover development costs and establish partnerships. Second, the Lido service on Solana will be gradually discontinued over the next five months, which means starting the sunset process for Lido on Solana, following the same path as Lido on Polkadot and Kusama. The proposal also states that P2P Validator hopes that this funding will allow Lido to gain more than 1% of the Solana staking market share, and it is expected to bring in a stable income of about $200,000.
However, the results of the community vote that ended on October 6 showed that as many as 92.7% of participants voted in favor of stopping the protocol, and Lido on Solana gradually entered the shutdown process. On October 16, Lido announced that it would stop accepting new stakes on Solana, and its projects on Solana will be gradually terminated in the next few months.
Lido is also "resisted" by the Arbitrum community, and its future is uncertain
As Ethereum transitioned to a fully proof-of-stake blockchain over the past year, Lido’s astonishing rise has been visible to everyone. For many users, this combination is more attractive than the cumbersome technicalities of setting up a validator and locking ETH into the main blockchain.
The problem is that Lido has become too popular, approaching the 33% threshold of total ETH proof of stake, which could theoretically threaten the 67% majority requirement. And now there are signs of resistance from many crypto communities and Lido.
The voting for Arbitrum's short-term incentive plan ended last week, and 57 of the 97 proposals were passed. The native projects on Arbitrum received the most support, while Lido became the most controversial project in the vote. Although there were more than 200 million ARB votes, the 4 million ARB incentive proposal it requested was not passed in the end. Opponents believe that Lido did not pay the corresponding incentives on Arbitrum for these 4 million ARBs; for a non-Arbitrum project, 4 million ARBs are too much; and some people also question whether Lido has posed a systemic risk to Ethereum.
However, supporters of Lido also believe that the protocol is simply taking full advantage of blockchain incentives and innovation, and the real threat should come from more centralized participants, such as large crypto exchanges. According to a report from Messari, Lido has been regulated by the outside world (as their growth shows) and must act responsibly, but the outside world does not agree that the existence of Lido has more or less improved the decentralization of Ethereum?
It’s clear that the Lido community isn’t afraid to make big decisions about products all the time, most recently with the breakups of Solana and Polygon.
But what Lido is facing now is operational problems. Based on the aforementioned, the Lido community believes that Polygon has no commercial value in this field, so community member Kentie suggested that it stop operating related services on Polygon and focus on making Lido a native ETH liquidity staking service provider, but is this strategy really feasible?
It can be said that Lido has grasped the timing of entering the market very well and has met the two core needs of capital for liquidity and returns. Therefore, there is nothing wrong with completely binding ETH to become its native staking service provider. However, once Lido chooses to bind ETH, Vitalik and some mainstream bigwigs or KOLs who frequently exaggerate online that Lido's high market share will endanger Ethereum's centralized mechanism will definitely bite the first safety line of Lido, which is about to approach 33% of the total staking volume.
It is estimated that Lido may have two directions. First, admit that Lido's ceiling has been reached and the growth figures have stagnated. However, this will be compounded by the fact that Solana and Polygon have been disconnected, resulting in no other sources of income, the ETH staked amount has reached a balance and new funds cannot be brought in, and even the interest rate must be reduced to 3% due to the limit of the number of validators. Many obvious risks have deepened the pessimistic outlook for Lido.
Second, ignoring the voice of the community, breaking the 33% norm, or allowing the inflow and interest rate of ETH staking to return to a surge, but the probability is small. CoinDesk exchange FalconX pointed out that since Ethereum merged in September 2022, transitioned to proof-of-stake and Shapella upgraded, users' interest in staking has surged, but that enthusiasm was followed by a gradual cooling.
However, if ETH’s dominance is optimistic and on-chain transactions return to a bull market, there will be a turnaround in this area. In short, there are still some community members who believe that the current situation is that the ETH ecosystem is supporting Lido’s operations, but on the other hand, Lido also has to face the uncertainty of ETH, especially the doubts and suppression of Lido’s centralization. It should consider deploying multiple parties to other networks to increase resilience and reduce risks. However, judging from the examples of Solana and Polygon, there is still a long way to go if it wants to do multi-chain liquidity staking.