Podcast Notes | Conversation with Lido Strategy Advisor Hasu: Will Lido Pose a Threat to Ethereum?
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Podcast Notes | Conversation with Lido Strategy Advisor Hasu: Will Lido Pose a Threat to Ethereum?
Has Lido been subject to unfair or inaccurate evaluations?
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Lido Holds Over 30% of ETH – Should We Be Concerned?
In this interview, Hasu, strategic advisor to Lido, discusses the current state of staking, Lido's development progress, and raises a critical question: Has Lido been unfairly or inaccurately criticized?
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Below are the key takeaways from the conversation, transcribed and compiled by TechFlow:
Host: David, Bankless
Guest: Hasu, Strategic Advisor to Lido
Video Source: Bankless Podcast
Original Title: "Hasu Explains: Is Lido a Threat to Ethereum?"
Episode Link: Link
Release Date: August 7
Controversies Surrounding Lido
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David notes that criticism toward Lido has been increasing, particularly conflicts with other staking service providers. Some critiques stem from genuine concerns, while others may be driven by narrative manipulation or opportunism from competing staking services.
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Hasu states that most controversy around Lido centers on its scale. Due to its size, Lido could potentially influence Ethereum validators.
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Another point of contention is stETH issued by Lido. Compared to ETH, stETH offers users additional yield as it represents staked positions on the Beacon Chain. This makes stETH more attractive than ETH but introduces systemic risks.
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Hasu mentions that if stETH (Lido’s token) encounters issues, deciding how to respond would involve complex decisions that might split the Ethereum community.
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The host observes that market demand for staked ETH is inevitable because it acts as a derivative version of ETH, offering enhanced returns. Therefore, the core discussion becomes which free-market service provider should supply staked ETH to the Ethereum economy.
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Hasu agrees with David, noting this is an inherent issue faced by any blockchain using proof-of-stake mechanisms.
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The host draws parallels to early Ethereum days when large amounts of ETH were concentrated in places like centralized exchanges or MakerDAO—centralization that posed systemic risks.
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Hasu recalls Vitalik Buterin once suggested limiting the size of funds raised through DAOs or ICOs to reduce systemic risk, but markets always find ways to circumvent such limits.
Potential Risks and Consequences of Lido Holding Large Amounts of ETH
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The host further explores potential risks associated with Lido holding significant ETH. He suggests that if Lido’s smart contract were hacked, attackers could gain control over vast amounts of ETH. Hasu responds that since ETH is already staked on the Beacon Chain, immediate withdrawal isn’t possible, giving the community time to coordinate a response.
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The host points out that when a staking entity holds substantial ETH, it may exert influence over the protocol. He asks Hasu what could happen if an entity controlled 33% or 66% of all staked ETH.
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Hasu emphasizes that for a distributed network to remain secure and functional, enough participants must honestly follow consensus rules, incentivized appropriately. In Ethereum’s consensus mechanism, stakeholders must lock up ETH as collateral to gain voting rights or stakes within the network.
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Hasu adds that Lido’s main risk lies in external actors infiltrating governance—for example, buying large quantities of LDO tokens or otherwise pushing proposals to attack the staked ETH smart contract.
Node Operators, Governance, and Weight
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Lido is actually a decentralized protocol connecting token holders to node operators. Currently, there are 29 different node operators, a number expected to grow. These operators are independent entities and do not always comply with directives from the Lido protocol.
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Host David elaborates on thresholds in proof-of-stake systems. If a staking entity surpasses certain protocol-defined thresholds, its governance power becomes critically important. For instance, controlling 33% of staked ETH allows influencing finality; at 66%, one essentially controls Ethereum’s outcome.
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David notes Ethereum’s governance philosophy avoids on-chain governance. However, if a service like Lido controls over 33% of ETH, it could effectively bypass Ethereum’s off-chain governance principles.
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Hasu counters that even if Lido governance decides on a course of action affecting Ethereum, it still needs coordination among a majority of its 29 node operators to execute it. Since each runs independent infrastructure, they decide how blocks are built and validated. While Lido can suggest actions, node operators aren’t bound to follow them—they can choose to exit or ignore recommendations. Lido currently lacks strong mechanisms to punish non-compliant operators.
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In the months before Ethereum’s Merge, Lido began considering how to handle MEV. Key decisions included whether to extract MEV and how to distribute it. Lido’s policy ensures node operators cannot hide MEV profits, preventing them from secretly profiting at users’ expense and ensuring user fund security.
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Hasu stresses Lido’s decision-making process. Lido avoids impromptu decisions, instead establishing well-considered policies reviewed and possibly revised annually.
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David acknowledges that Lido holding 31% of staked ETH isn’t ideal. Ideally, all ETH would be staked individually by holders. But realistically, he prefers Lido holding 31% rather than a centralized exchange like Binance doing so.
Relationship Between Node Operators and Lido DAO
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David further examines the relationship between Lido’s node operators and the Lido DAO. He questions whether node operators could act independently if the DAO made harmful decisions for Ethereum.
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Hasu explains Lido’s new concept—Dual Governance. This means governance responsibilities are shared between Lido token holders and stakers. This dual system resembles bicameral governance models, such as Optimism’s, which includes both token holders and nominated community members. (Bicameral governance system: a model with two distinct governing bodies, each with separate rights and responsibilities, jointly participating in decision-making.)
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Lido’s dual governance enables stakers to veto proposals and penalize proposers or voters, creating strong barriers against malicious actions.
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David notes that Lido’s dual governance aims to ensure alignment with Ethereum’s off-chain governance philosophy. Hasu clarifies that while stakers can veto Lido proposals, they cannot modify the protocol itself.
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David compares crypto organizations with traditional companies, highlighting that crypto protocols can implement such governance designs, unlike conventional firms. Hasu adds that the dual governance model is still under research and may launch before year-end.
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The host asks how node operators would react if the Lido DAO passed a proposal they opposed. Hasu replies that in the future, if operators wish to leave, the Lido DAO could programmatically rotate out their validators.
Dual Governance, V2 Version, and Modularity
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David asks whether Lido can be forked and if a “Lido Classic” version could exist under certain conditions. Hasu explains that while Lido’s code can be forked, ETH is already staked on the Beacon Chain, so immediate withdrawal isn't feasible. (Fork: copying or modifying Lido’s code)
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Hasu introduces Lido V2, featuring two major upgrades: 1) enabling withdrawals from the Beacon Chain, and 2) introducing a Staking Router that supports various staking strategies or node operators. Hasu predicts Lido may have over 5,000 node operators within three to four years.
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David delves into Lido’s modular design, noting this pattern is increasingly common in crypto. He references Ethereum’s rollup-centric roadmap and compares architectural patterns with those in Lido V2. Hasu explains that Lido aims to push complexity to the edges, keeping the core protocol simple, understandable, and auditable.
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Hasu highlights the importance of network effects, noting that industries with strong network effects often end up with one or a few dominant players. He cites other dominant Ethereum projects like Uniswap and MetaMask, which leveraged network effects through unique features and superior user experience to attract massive adoption and achieve leadership in their domains.
About the Ethereum Community
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Hasu discusses characteristics of the Ethereum community, especially differences from the Bitcoin community. He notes that despite Bitcoin’s ideological rigor, it couldn’t prevent 80% of blocks being produced in China or 50% of block updates coming from U.S. public companies.
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Hasu talks about Ethereum’s core values—optimism, science, creativity, and community. He believes the Ethereum community should strive to solve problems while staying true to these foundational values.
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Host David mentions internal struggles within the Ethereum community, particularly around centralization vs. decentralization. He argues that maintaining decentralization requires a committed core willing to sacrifice some benefits for the greater good.
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Hasu refers to certain Ethereum innovations, such as maximizing MEV extraction while democratizing access. He also references Vitalik’s “endgame” post outlining methods to keep block validation decentralized while providing censorship resistance for users.
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David asks Hasu whether he believes Lido has faced unfair criticism or attacks within the community—suggesting Lido may be misunderstood or questioned in certain aspects.
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Hasu clearly states he does not believe Ethereum’s main leaders or influencers see Lido as misaligned with Ethereum’s goals and values. This implies that despite existing controversies or differing opinions, the mainstream Ethereum community does not view Lido as opposing or undermining Ethereum.
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Hasu also notes that while Ethereum leaders may not oppose Lido, they might hold differing views or strategies. This means that although both Lido and Ethereum’s core leaders support Ethereum’s long-term vision, disagreements may exist regarding specific approaches or tactics for achieving those goals.
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