Lido eyes ‘low-risk staking’ to boost flagging market share

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Lido’s market share has fallen from 32% to 24% since 2023, when its dominance of the liquid staking market inspired claims it was approaching , monopoly status.

But co-founder Vasiliy Shapovalov has a plan to reclaim the ground it has ceded to competitors by offering “low-risk staking” to institutional and high-net-worth users.

Shapovalov detailed the plans at last week’s inaugural call for Lido token holders, as the protocol’s share of the liquid staking market hit its lowest point in over four years.

The problem, as Shapovalov sees it, is that Lido’s developers missed a massive opportunity while attempting to assuage critics.

Three years ago, Ethereum researcher Danny Ryan penned a warning cheekily titled, “The Risks of LSD,” meaning liquid staking derivatives.

“In the extreme, if an LSD protocol exceeds critical consensus thresholds such as 1/3, 1/2, and 2/3, the staking derivative can achieve outsized profits,” Ryan wrote — profits that create a perverse incentive to censor certain transactions.

Around that time, Lido was responsible for about 32% of all staked Ether, just shy of a “critical consensus threshold.”

Ryan’s tone was measured, but the conclusion was damning. After all, the whole point of crypto is to create censorship-resistant finance.

“I recommend that Lido and similar LSD products self-limit [market share] for their own sake,” he concluded.

Lido took steps to appease its critics. It introduced a feature known as distributed validator technology, and another that allowed home stakers to run validators through the protocol. It grew the number of operators from about three dozen to more than 300.

All the while, competitors like restaking protocol Ether.Fi and Binance’s Ethereum liquid staking token ate into Lido’s market share.

“Lido failed to ride the wave of restaking,” Shapovalov said on last week’s call. Instead, developers focused on improving Lido “in ways that don’t bring much growth in short and medium term, like dual governance and community staking.”

The moves burnished Lido’s image, but failed to bring growth, according to Shapovalov.

As a result, Lido Labs, the company behind the protocol, recently laid off 15% of its workforce.

The new institutional push comes as the worlds of DeFi and TradFi collide, with more and more asset managers looking to invest in Ethereum and stake it for yield.

US regulators have signalled they’ll take a hands-off approach when it comes to liquid staking providers. Lido’s stETH token should win over users with its deep liquidity compared to competitors.