Dominant liquid staking protocol Lido has taken a step towards greater decentralization following a successful onchain vote by its DAO to activate a new community staking software module on Ethereum mainnet.
On Friday, Lido’s governing body made up of LDO holders voted to approve the release of the module, which enables permissionless entry into Lido’s node operator set via the use of an ETH bond. Of LDO’s total supply of one billion tokens, nearly 60 million from 134 addresses supported the proposal, versus a miniscule 83.6 votes against.
Lido is the largest DeFi protocol by total value locked at $24.7 billion. However, ETH staked through Lido is overwhelmingly distributed amongst fewer than 40 node operators, according to Lido’s dashboard
The mainnet debut of Lido’s community staking module comes almost four months after the U.S. Securities and Exchange Commission (SEC) implied in their charge against software developer Consensys that stETH, Lido’s flagship product, was an unregistered security.
Read More: Could the SEC Have a Case Against Liquid Staking Protocols?
Since Lido first entered the crypto ecosystem in 2020, the protocol’s node operators have been a curated and permissioned group where parties intent on serving as a node operator had to be screened by the DAO. “This intentional design decision was made to support protocol safety and reliability at its early maturity stages, emphasizing launching a scalable solution,” wrote Lido DAO contributor Dmitriy Gusakov in a blog post last edited in June.
However, the new community staking module is expected to increase the decentralization of the protocol. The module is designed to substantially increase Lido’s total number of node operators, and allow community stakers to join these operators permissionlessly.
Crypto protocols that issue tokens often claim their cryptocurrencies are not securities because there is typically no third party working on behalf of the protocol. This removes it from one of the primary conditions of what constitutes a security based on the Howey test used by the SEC.
The price of LDO has not moved much in the last 24 hours, but over the past 30 days, it has decreased 14% to $1.09, giving it a market cap of over $977 million, per CoinGecko.
