## Lido (LDO) - What does the future of liquid staking mean?

**Quick Understanding** To understand the meaning of Lido (LDO), it is essential to grasp the core problem it addresses: on PoS blockchains, tokens staked by users are typically locked and cannot flow within the DeFi ecosystem to generate additional yield. Lido was born out of an innovative liquid staking solution, allowing users to stake any amount of PoS assets and receive corresponding liquidity certificates (stAsset tokens), which can earn yields while being staked and also participate in other DeFi protocols to earn extra returns.

## The Dilemma and Breakthrough of Traditional Staking

In the blockchain ecosystem of the Proof of Stake consensus mechanism, participating in network validation requires locking tokens. This mechanism brings three main challenges: first, asset liquidity is limited - once tokens are frozen, users cannot perform liquid operations; second, the technical threshold is high - running validation nodes requires complex configurations and expertise; third, the participation cost is expensive - many blockchains require a minimum stake amount, excluding small holders.

Lido was created to address these issues. Established in 2020, this protocol has now become a liquid staking solution that supports multiple PoS chains such as Ethereum (ETH), Solana (SOL), Polygon (MATIC), Polkadot (DOT), and Kusama (KSM).

## How Lido Works

To understand the practical application of Lido (LDO), it is necessary to understand its core mechanism. When users deposit PoS assets into Lido, the backend smart contract pool system automatically executes the following process:

Smart contracts are responsible for managing user deposits and withdrawals, delegating funds to node operators, collecting and distributing staking fees, and handling token minting and burning. The contract internally maintains a complete list of node operators, their validation keys, and profit distribution addresses.

Taking ETH staking as an example: The Merge upgrade officially transitioned Ethereum to the PoS mechanism. The traditional rule requires each validator to stake 32 ETH to participate. Lido breaks this limitation—users can stake amounts of less than 1 ETH. After depositing, users receive stETH tokens (ERC-20 standard), which represent their staked ETH at a 1:1 ratio.

The operational logic of stETH is as follows: minting occurs when user funds enter the Lido smart contract, and burning happens when users withdraw ETH. Users' ETH is distributed among multiple node operators (validators) in the Lido network, and these validators submit it to the Ethereum beacon chain for validation. The funds themselves are held by the smart contract, and validators cannot directly access them.

Lido DAO will subsequently select, register, and support node operators, adding their addresses to the contract registry. Approved validators receive a set of validation keys, using public keys to validate transactions involving user stake assets. The design of distributing user stakes across multiple validators elegantly eliminates the risk of a single point of failure. Additionally, node operators will create withdrawal addresses that allow users to redeem their staked ETH after The Merge is completed.

## The Innovative Value of Liquid Staking

Lido (LDO) is significant because it structurally improves the PoS ecosystem. Liquid staking is an innovative solution that addresses three pain points of traditional staking by maintaining the liquidity of staked tokens:

**Eliminate liquidity freeze**: stAsset tokens can be freely used in DeFi—as collateral for lending, for liquidity mining, or to participate in other yield strategies, allowing users to earn extra returns without losing staking rewards.

**Reduce Technical Complexity**: No need to manage verification nodes, ordinary users can participate directly, significantly lowering the entry threshold.

**Expand Participation Scope**: Break the minimum stake amount requirement, allowing small holders to also earn staking rewards.

## Lido DAO: Decentralized Governance

To manage the protocol in a decentralized manner, Lido has established a decentralized autonomous organization (DAO). The DAO formulates and enforces rules through smart contracts and governs through an efficient decentralized decision-making process, covering:

- Stake fee parameters and allocation management
- Adding and removing node operators
- Protocol upgrades and important decisions

This structure ensures that the interests of the protocol are aligned with all stakeholders, enhancing transparency and true decentralization.

## The Role of LDO Token

LDO is the native functional and governance token of the Lido ecosystem, following the ERC-20 standard, with a total supply of 1 billion tokens. The dual identity of LDO is:

**Incentive Mechanism**: LDO is used to reward network participants, incentivizing ecological growth and activity.

**Governance Power**: Holders gain voting rights in the Lido DAO. Users holding more LDO tokens have a stronger voice in governance decisions—this is a typical "one token, one vote" democratic model.

## The Significance of Lido in the PoS Ecosystem

From a more macro perspective, Lido (LDO) represents the evolution direction of staking infrastructure. By eliminating liquidity constraints, simplifying technical processes, and reducing entry costs, liquid staking protocols are expected to play a key role in the future growth of DeFi.

The successful model of Lido has been replicated across multiple public chains, gradually forming the industry standard for liquid staking. For users who wish to participate in network validation while also maximizing capital efficiency, Lido offers an ideal balance solution—providing both basic staking rewards and maintaining asset liquidity and investment flexibility.