Conversation between Lido strategic advisor Hasu: Will Lido pose a threat to Ethereum?
Arrangement Compilation: Shenchao TechFlow
Lido holds more than 30% of ETH, should we be wary?
In this interview, Hasu, Lidos strategic advisor, discusses the current status of Staking, Lidos current development, etc., and asks a question -- has Lido been unfairly or inaccurately evaluated?
As the LSD track is becoming more and more popular today, paying attention to the development of leading projects and the opinions of industry insiders will help us better grasp opportunities.
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The following is the main content of this dialogue, which was translated and organized by Shenchao, and the main points were output:
Host: David, Bankless
Speaker: Hasu, Lido strategic consultant
Video attribution:Banklesspodcast
Original title: Hasu Explains: Is Lido a Threat to Ethereum?
programme:Link
Published: August 7
Lido’s current controversies
David mentioned that the controversy about Lido has gradually increased, and there are conflicts with other Staking service organizations. Some criticisms may be based on genuine concerns, while others may be based on narrative or the opportunism of other staking services.
Hasu said Lidos controversy centered on its size. Due to its size, Lido may have some influence over Ethereums validators.
Another point of controversy is the stETH asset issued by Lido. Compared with ETH, stETH provides users with additional benefits because it represents validator Staking on the Beacon chain. This makes stETH more attractive than ETH, but also poses systemic risks.
Hasu mentioned that if something goes wrong with stETH (Lido’s token), deciding what to do with it will be a complex decision that could split the Ethereum community.
The host mentioned that the market demand for staked ETH is inevitable because it is a derivative version of ETH and can bring more benefits to users. So at the heart of this discussion is which free market service provider will provide this staked ETH to the Ethereum economy.
Hasu agrees with David and mentions that this is an inherent problem that any chain using proof-of-stake will face.
The moderator mentioned that this problem is similar to the problem in the early days of Ethereum, when a large amount of ETH was concentrated in one place, such as a centralized exchange or MakerDAO, this centralization may lead to systemic risks.
Hasu recalls that Vitalik Buterin once suggested limiting the size of funding for DAOs or ICOs to reduce systemic risk, but the market would always find a way around these restrictions.
Potential risks and consequences of holding large amounts of ETH on Lido
The host further discussed the potential risks of Lido holding large amounts of ETH. He mentioned that if Lidos smart contract is hacked, the hacker may control a large amount of ETH. Hasu responded that since ETH is already staking on the Beacon chain, it cannot be withdrawn from Lido immediately, giving the community time to decide how to respond.
The host mentioned that when a Staking organization holds a large amount of ETH, it may have an impact on the protocol. He asked Hasu what they could do if one entity controlled 33% or 66% of all staking ETH.
Hasu emphasized that for a distributed network to be secure and function properly, there needs to be a sufficient number of participants honestly following the rules of the consensus protocol, and creating the right incentives to encourage this behavior. Under the consensus mechanism of Ethereum, token holders are required to pledge their ETH as a deposit to obtain voting rights or equity in the network.
Hasu mentioned that the risk of Lido is mainly concentrated in the possibility that external attackers may enter the governance, such as purchasing a large amount of Lido or introducing proposals through other means, thereby attacking the smart contract of staked ETH.
Node operators, governance and weighting
Lido is actually a decentralized protocol from currency holders to node operators, and there are currently 29 different node operators and this number is growing. These node operators are not the same party and do not always follow the directions of the Lido protocol.
Moderator David discussed thresholds in proof of stake in detail. If a staking entity exceeds certain protocol-controlled thresholds, the governance of that entity becomes very important. For example, if an entity controls 33% of all staking ETH, they can influence and control finality. If they control 66%, they are basically Ethereum and can choose the outcome of the protocol.
David pointed out that Ethereum’s governance philosophy is not to govern on the chain. But if a service entity like Lido owns more than 33% of ETH, it could circumvent Ethereum’s off-chain governance philosophy.
Hasu responded that even if Lido governance decides to take some action against Ethereum, a majority of the 29 node operators would need to be coordinated to carry out that decision. Because these node operators run their own local infrastructure, they decide how blocks are built, how they are verified, etc. Hasu explained that while Lido can advise node operators on how to behave, node operators are not bound to opt out or not follow Lidos advice, and Lido currently has no strong way to punish node operators who do not follow its advice.
A few months before the Ethereum merger, Lido began thinking about what to do with MEV. They need to decide whether to extract MEV, and how. Lidos policy aims to ensure that node operators cannot conceal MEV, prevent node operators from stealing funds from users without telling or sharing the benefits, and ensure the safety of users funds.
Hasu emphasized how Lido makes decisions. Instead of making off-the-cuff decisions, Lido tries to develop well-thought-out policies that may be revisited and revised annually.
Moderator David mentioned that Lido owning 31% is not ideal. Ideally, all ETH should be staked by a single holder. But in reality, he would prefer Lido to have a 31% stake, rather than a centralized exchange like Binance to have the same stake.
The relationship between node operators and Lido DAO
David further explores the relationship between Lido node operators and the Lido DAO. He mentioned that if the DAO makes a decision that is harmful to Ethereum, whether the node operator can be independent from this decision.
Hasu explained Lidos new concept - Dual Governance. This means that governance responsibilities will be divided between Lido token holders and stakers. This dual governance system is similar to a bicameral governance system, such as Optimisms bicameral system, where there are token holders and nominated community participants. (Deep tide note: The bicameral governance system means that there are two different governance institutions or groups, each of which has its own rights and responsibilities, and jointly participates in the decision-making process.)
Lidos dual governance system allows stakers to veto proposals and penalize those who propose and vote, creating a large barrier to malicious proposals.
Moderator David mentioned that Lido’s dual governance system is to ensure that Lido’s governance does not violate Ethereum’s off-chain governance philosophy. Hasu explained that stakers can veto Lido’s proposal but cannot change the agreement.
David compared the operation of encrypted organizations with traditional companies, pointing out that encrypted economic protocols can design such governance systems, while traditional companies cannot. Hasu mentioned that the dual governance system is still being worked on and could go live before the end of this year.
The moderator asked how node operators would react if Lido DAO passed a proposal that node operators disagreed with. Hasu responded that in the future, Lido DAO can programmatically retire these validators if node operators want to leave.
Dual governance, V2 version and modularization
David asked if Lido could be forked and, in some cases, if one could be created"Lido Classic"Version. Hasu explained that Lido’s code can be forked, but since ETH is already staked on the Beacon chain, it cannot be immediately withdrawn from Lido. (Fork: copy or modify Lidos code)
Hasu mentioned the new version of Lido - Lido V2. This release introduces two main features: 1) it allows withdrawals from the Beacon chain, and 2) it introduces a staking router that can represent different staking strategies or node operators. Hasu predicts that Lido may have more than 5,000 node operators within the next three to four years.
David further discusses Lidos modular design, noting that this design pattern is becoming more common in the crypto space. He mentioned Ethereum’s roll-up centralization roadmap and how the design patterns of other layers compared to Lido V2. Hasu explained that Lido is working to push complexity to the edge, making the core protocol simple, easy to understand and auditable.
Hasu emphasized the importance of network effects, noting that in industries with network effects there is usually one or a few dominant players. He mentioned that other projects that are dominant on Ethereum, such as Uniswap and Metamask, have leveraged network effects to attract a large number of users by providing unique features and a good user experience, thereby becoming dominant in their respective fields status.
About the Ethereum Community
Hasu discussed the characteristics of the Ethereum community, specifically how it differs from the Bitcoin community. He mentioned that although the Bitcoin community is very aggressive, they cannot prevent 80% of the blocks from being generated in China, or 50% of the blocks being updated by US public companies.
Hasu discussed the core values of the Ethereum community such as optimism, science, creativity, and community. He believes that the Ethereum community should work hard to solve problems while remaining true to these core values.
Moderator David mentioned some of the struggles in the Ethereum community, specifically around centralization and decentralization. He believes that in order to remain decentralized, the community needs to maintain a solid core that is willing to give up some interests in order to do the right thing.
Hasu mentioned certain features of Ethereum, such as how it maximizes MEV withdrawals but democratizes it at the same time. He also referred to Vitaliks Endgame post, in which Vitalik mentioned how to ensure that block validation remains decentralized while providing censorship resistance mechanisms for users.
David asked Hasu if he thought Lido was unfairly criticized or bashed in the community. This could mean that Lido may have been questioned or misunderstood in some respects.
Hasu first made it clear that he does not believe that major leaders or influencers in Ethereum view Lido as inconsistent with Ethereum’s goals and values. This means that, although there may be some controversy or different views, the mainstream Ethereum community does not view Lido as being against or against Ethereum.
Hasu also pointed out that while Ethereum leaders may not be opposed to Lido, they may believe that Lido has some views or strategies that are different from theirs. This means that while both Lido and Ethereum’s key leaders support Ethereum’s long-term goals, there may be disagreements on specific methods or strategies for how to achieve them.
