Lido Unveils Innovative Governance Plan for stETH Holders

What You Need to Know:

Lido Finance has proposed a governance framework empowering staked ether (stETH) holders with a veto power over crucial protocol decisions.
This initiative, termed Lido Improvement Proposal (LIP) 28, aims to enhance accountability and decentralization within Ethereum’s staking environment.
Currently under discussion, a formal vote on the proposal is anticipated shortly, which could establish a model for other DeFi protocols.

Lido Finance, the leading liquid staking platform for Ethereum, is introducing a proposal that permits staked ether (stETH) holders to partake in governance alongside existing DAO tokenholders.

The Lido Improvement Proposal (LIP) 28 sets forth a dual governance mechanism which grants stETH holders—those who stake ETH through Lido and receive a corresponding liquid token—the ability to exert control via a veto on significant protocol decisions. At present, only holders of LDO, Lido’s governance token, influence the protocol’s direction.

Under this new governance system, stETH holders could oppose certain proposals approved by LDO tokenholders, however, they would not possess the power to unilaterally implement proposals.

Dual Governance: Coming Soon
Years of research have led Lido DAO contributors to share an outline for the forthcoming Dual Governance release, detailing design, code choices, parameters, deployment, and rollout. Read more here.
— Lido (@LidoFinance) May 9, 2025

The proposed framework is designed to boost accountability and decentralization at a time when Lido’s influence in Ethereum’s staking landscape is significant, with over 25% of all ETH staked via its infrastructure.

How It Operates

The Dual Governance proposal introduces a unique time lock contract that interlinks Lido DAO’s decisions with their execution, providing a means for stETH holders to intervene should they vehemently disagree with a proposal.

This dynamic time lock is critical, as it is the mechanism through which on-chain governance functions. Currently, decisions don’t take immediate effect due to a predetermined period before execution, allowing users ample time to respond against any unwanted changes.

The intricate nature of Ethereum staking complicates quick withdrawals of ETH; hence, the new proposal intends to address this issue. The plan suggests that if disgruntled users deposit their stETH into a selected escrow contract for withdrawal, the time lock duration will begin to extend—referred to as crossing the ‘first seal’ (set at 1% of total Lido ETH staked).

Should discontent persist, resulting in deposits surpassing the ‘second seal’ threshold (10% of Lido’s ETH Total Value Locked), it triggers a ‘rage quit’, thus halting the execution of the DAO’s decision until the dissenting stakers can withdraw their ETH.

This system aims to function as a safety mechanism, providing stakers the option to express their dissent and exit while granting the DAO time to react or retract the controversial action.

This proposal emerges as Ethereum has surged over 30% recently, gaining momentum from the Pectra upgrade, which implemented reforms to enhance scalability and efficiency. The rally has drawn renewed interest in Ethereum-native solutions like Lido, which play a pivotal role in capital distribution and validator engagement across the chain, significantly influencing ETH’s market dynamics.

The LIP-28 initiative is still open for discussion, with a formal vote on the blockchain anticipated in the weeks ahead. If it passes, this change could transform governance within Ethereum’s staking ecosystem, setting a standard for DeFi protocols that aspire to integrate user participation, rather than just tokenholders, in governance decisions. Competitors to Lido include Rocket Pool and Frax Ether.

The value of LDO has notably increased by 6.5% over the previous 24 hours, while the CoinDesk 20 Index, a broader market indicator, rose by 2.5%.