Silicon Valley based venture capital firm Andreessen Horowitz (“a16z”) has announced that it has invested in decentralized staking platform Lido.
What Is Lido?
Lido, which was introduced on 15 October 2020, is “a liquid staking solution for ETH 2.0 backed by industry-leading staking providers.” It “lets users stake their ETH – without locking assets or maintaining infrastructure – whilst participating in on chain activities, e.g. lending.” Lido “attempts to solve the problems associated with initial ETH 2.0 staking – illiquidity, immovability and accessibility – making staked ETH liquid and allowing for participation with any amount of ETH to improve security of the Ethereum network.”
Here is how Lido works:
“When staking with Lido, users receive stETH tokens on a 1:1 basis representing their staked ETH. stETH balances can be used like regular ETH to earn yields and lending rewards, and are updated on a daily basis to reflect your ETH staking rewards, minus any penalties. Note that there are no lock-ups or minimum deposits when staking with Lido. When using Lido, users receive secure staking rewards in real-time, allowing for participation in the securing of Ethereum with fewer associated risks and less downside potential.“
As for stETH, this is “a token that represents staked ether in Lido, combining the value of initial deposit + staking rewards – penalties.” These tokens are “minted upon deposit and burned when redeemed.” stETH token balances are “pegged 1:1 to the ETH that is staked using Lido”. stETH token balances are “updated when the oracle reports changes in total stake every day.” stETH tokens can be “used as one would use ETH, allowing you to earn ETH 2.0 staking rewards whilst benefiting from, among other things, yields across decentralised finance products.”
Andreessen Horowitz’s Becomes an Investor in Lido
In a blog post published on March 3, a16z started by talking about difficulties with ETH 2.0 staking:
“Perhaps most notably, there is a 32-ETH minimum required to operate a node. This alone prevents a significant number of network users from running their own validator, and there is no native method for delegating one’s stake to circumvent these minimum capital requirements. Moreover, staking to the Beacon chain today is a one-way transaction – effectively locking up ETH until the transition from PoW to PoS – resulting in a high opportunity cost of capital given the abundance of yield-generating alternatives that exist in DeFi.“
It then talked about Lido and why they had decided to invest in it:
“It offers one of the easiest ways to stake ETH and other PoS assets today, while striving for decentralization through the DAO’s governance. Lido democratizes staking.
“The Lido community’s unwavering commitment to decentralization really stood out to us. They recognize that for their approach to succeed, they will need to create a fully-trustless staking pool while also embracing alternative solutions.
“Finally, Lido solves the competitive incentives between staking and seeking yield in DeFi. By issuing an Ethereum-native liquid token, Lido allows you to use staked ETH as collateral within DeFi in the same way you can use ETH currently.“
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.
Featured Image by “Shutterbug75” via Pixabay