In recent months, staking crypto assets as a way to earn passive income has been generating increasing interest among investors. Moreover, staking services have scaled so much that they’ve become a separate industry in the crypto industry — and according to forecasts, will continue to grow rapidly.
According to JP Morgan’s report, the annual revenue of the staking industry today is about $9 billion, and by 2025 it could reach $40 billion. The main driver of this growth is the transition of the Ethereum network from the Proof of Work (PoW) consensus mechanism to Proof of Stake (PoS).
If you want to understand more deeply what PoW, PoS are and how staking works in general, we recommend familiarizing yourself with the Staking Guide from CoinSutra.
Why Regular Staking Isn’t for Everyone?
The most direct way to participate in staking is to run your own validator node. However, this path comes with serious limitations:
- Running a validator in the Ethereum network requires at least 32 ETH (or a multiple of this number);
- A powerful computer with a high-performance processor is needed;
- Technical skills are required to set up and maintain the node;
- You need to wait for network approval, and the validation queue is already very long.
For most investors, such requirements are unattainable. This is why staking services that solve these problems for you are becoming increasingly popular.
Centralized vs Decentralized Staking Providers
There are two main types of staking services:
- Centralized — such as Coinbase, Kraken, and Binance. They allow staking assets in one click through their own nodes. But there’s a significant drawback: exchanges fully control your funds, making you vulnerable in case of a hacker attack or internal platform problems.
- Decentralized protocols — a more secure and transparent alternative. They work without transferring custody (non-custodial), allowing you to maintain control over your assets. Lido Finance belongs to this category.
What is Lido Finance?
Lido Finance is a liquid staking protocol that allows users to stake cryptocurrency in PoS networks without losing liquidity and without transferring control over assets.
When you send ETH to Lido, funds go to special staking contracts that aggregate deposits from many users and distribute them among trusted node operators. Important: operators don’t own your funds — the protocol remains non-custodial.
In exchange for staking, you receive a derivative token in a 1:1 ratio. For example:
- For staking ETH you get stETH,
- For SOL — stSOL,
- For LUNA (through Anchor Protocol) — bLUNA.
These tokens can be used in the DeFi ecosystem:
- Add to liquidity pools on Curve and earn rewards;
- Deposit in Yearn Finance to maximize yield;
- Use as collateral in Aave;
- Exchange on 1inch or convert to other assets (e.g., stETH → bETH for use in Terra).
Lido advantages:
- Safer than exchanges (non-custodial);
- Liquidity of staked assets is preserved;
- No minimum threshold — you can stake even 0.1 ETH;
- Support for cross-chain integrations (e.g., using stETH in the Terra ecosystem).
Key Lido Finance Components
1. Lido DAO
The protocol is managed by a decentralized autonomous organization (DAO). Decisions are made by LDO token holders through voting. Among founders and early participants are well-known names from the DeFi world: teams from Maker, Aave, Yearn, Synthetix, as well as venture funds Paradigm, ParaFi, KR1, and others.
DAO is responsible for:
- Setting fees;
- Asset insurance;
- Research and development;
- Protocol updates.
2. Staking Service
Lido charges 10% of staking rewards — this is its only monetization model. Today, 16.17% of all ETH in the Ethereum network is staked through Lido — an impressive indicator for a project launched in December 2020.
Supported assets:
- ETH (Ethereum 2.0),
- SOL (Solana),
- LUNA (through Anchor Protocol).
In the near future, AAVE is planned to be added, and proposals for integrating Polkadot, Kusama, and Polygon are being considered.
3. Derivative Tokens (stETH, stSOL, bLUNA)
Each token represents:
Initial deposit + staking rewards – slashing penalties
These tokens provide access to dozens of DeFi applications:
- Curve, Aave, Yearn, 1inch, Anchor Protocol, and others.
4. Governance Token — LDO
- Maximum supply: 1 billion tokens;
- In circulation: ~24.5 million (about 2.5%);
- Market capitalization: ~$166.5 million;
- Fully diluted capitalization: ~$6.84 billion.
Token distribution:
- 36.32% — DAO treasury;
- 22.18% — investors;
- 20% — developers;
- 15% — founders and employees;
- 6.5% — validators.
A significant portion of tokens (64%) was locked for 1 year and began unlocking in December 2021. This may put pressure on LDO price in the future.
5. Security and Insurance
Lido ensures security through:
- Non-custodial architecture;
- Regular smart contract audits;
- Bug Bounty program on the Immunefi platform (maximum reward — $100,000).
In addition, Lido has partnered with Unslashed Finance to insure up to 5% of losses from slashing penalties.
Lido Finance Competitors
Main competitors are centralized exchanges (Binance, Coinbase, Kraken), offering simple but non-custodial staking with lower yield.
Among decentralized solutions — Rocket Pool, but at the time of writing this review, it hasn’t launched a full service yet. This gives Lido a first-mover advantage.
Lido Finance Advantages
- ✅ Non-custodial staking
- ✅ Liquidity through derivative tokens
- ✅ Ability to stake any amount
- ✅ Integration with hardware wallets (Ledger)
- ✅ Slashing risk insurance
- ✅ Rapid growth in ETH staking market share
Risks and Limitations
- ⚠️ Smart contract risks — despite audits, vulnerabilities are possible
- ⚠️ Dependence on underlying network security (Ethereum, Terra, etc.)
- ⚠️ Low LDO token utility
- ⚠️ Weak tokenomics: large volume of future releases may pressure price
- ⚠️ Potential slashing penalties for node operator errors
Conclusion
Lido Finance is one of the most promising liquid staking protocols. It combines security, decentralization, and flexibility, allowing investors to earn passive income without locking capital.
The project already controls more than 16% of all staked ETH, and plans include expansion to new networks. However, LDO tokenomics raises questions: the huge volume of tokens awaiting market release may negatively impact price.
