What Lido does
Lido is a liquid staking protocol that lets users stake ETH — and, on other chains, assets like SOL and MATIC — without running their own validator or locking funds for an unpredictable withdrawal queue. Deposit ETH and Lido issues stETH, a liquid receipt token that accrues staking rewards and can be used across DeFi as collateral, in liquidity pools, or simply held. Under the hood, Lido distributes deposited ETH across a curated set of professional node operators rather than a single validator, spreading operational risk.
LDO is the governance token of the Lido DAO, which sets protocol parameters, approves node operators, and directs treasury funds, but LDO holders don't earn staking rewards directly — that yield flows to stETH holders, with Lido taking a protocol fee split between node operators and the DAO treasury.
Why it matters — and why it's controversial
Lido solved a real problem: pre-liquid-staking, locking ETH into Ethereum's proof-of-stake validators meant giving up liquidity for potentially years. stETH turned that into a tradable, composable asset, and Lido became the dominant liquid staking provider almost immediately, with stETH becoming a foundational DeFi building block used as collateral across Aave, Curve and beyond.
That dominance is the controversy. At various points Lido's share of all staked ETH has approached or exceeded the roughly one-third threshold where, in theory, a single entity's validator set could start to influence Ethereum's finality — prompting real debate within the Ethereum community about self-limiting staking pool size, a proposal Lido has resisted. Concentration in stETH itself is also a DeFi risk: it's so deeply embedded as collateral that a depeg or exploit would ripple through numerous protocols simultaneously.
Risks worth knowing
Smart contract risk on Lido's staking and withdrawal contracts is real, if well-audited. stETH has depegged modestly from ETH during periods of market stress, which matters for anyone using it as leveraged collateral. And the governance concentration and validator-share debate isn't resolved — regulatory or protocol-level intervention aimed at staking centralisation remains a live tail risk for LDO holders and stETH users alike.