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Introduction to Lido Protocol

02.03.2022

Last week, the Coinmetro Team introduced the Terra Ecosystem as Coinmetro now supports native Terra.

We also wrote about two of its flagship protocols – Anchor (Lending) and  Mirror (Synthetic). However, this series of articles wouldn’t be complete without an introduction to Lido Protocol (Liquid Staking), the third largest protocol on Terra.

What is liquid staking, and why is Lido Protocol different?

 

What is Liquid Staking?

Staking usually involves locking one’s funds, without being able to transfer, sell, or otherwise use them.

Liquid staking, on the other hand, is known as soft staking. This method allows users to access the funds that are being staked at the moment. Although the funds remain in escrow, they are accessible and usable.

Liquid staking is possible through the use of tokenized versions of staked funds. This is where Lido Protocol comes in as a great alternative to common crypto staking.

 

What is Lido Protocol?

Lido is a liquid staking solution for ETH 2.0 lowering the entry barriers for staking ETH. 

Essentially, Lido Protocol allows users to stake a fraction of the ETH and still get rewarded from Ethereum 2.0. Technically, Lido is simple to use as the protocol removes the technical burden out of the equation and stakes on behalf of the user.

 

The Aims of Lido Protocol

Here are Lido Protocol’s primary aims:

  • Users can stake ETH with Lido Protocol, bypassing illiquidity, immovability, and inaccessibility that are associated with staking Ethereum;
  • Users get staking rewards without fully locking their capital;
  • The protocol enables users to earn rewards on deposits smaller than 32 ETH – the usual minimum stake requirement for ether – and imposes no restrictions on deposits different than a multiple of 32 ETH;
  • The protocol has been audited as secure, reducing the risks of losing staked deposits due to software errors or malicious activity of third-parties;
  • To make its stETH token (learn more about the protocol’s tokens below) a building block for other dApps and protocols.

All things considered, Lido Protocol is considered an alternative to exchange staking and other decentralized protocols.

 

What is stETH?

stETH is the protocol’s ERC20 token that users receive when they stake ETH with Lido. As the name – stETH – suggests, it’s the liquid token equivalent of staked ETH.

stETH tokens are minted upon deposit and burned once redeemed. Token balances are pegged 1:1 to ETH staked by Lido. It may be interesting to know that the balances are updated on a daily basis when the oracle reports a change in total stake.

 

What is LDO?

LDO is an ERC20 token granting governance rights in the Lido DAO (Decentralized Autonomous Organization).

What is Lido DAO? The Lido DAO governs a set of liquid staking protocols, deciding on crucial parameters and executing protocol upgrades to maintain its stability.

LDO token holders are granted voting rights within the Lido DAO. As a result, the more LDO tokens are locked in a user’s voting contract, the more decision-making power they obtain.

 

Wrap-Up

Lido Protocol is a powerful novelty in the world of Ethereum (liquid) staking and opens new possibilities for future innovations within the protocol and integration between different protocols.

Whenever you’re ready to start trading, you can either sign up to Coinmetro or head over to the exchange if you’re a registered user.