Lido Finance, the largest liquid staking platform on Ethereum by total value locked, has put forth a proposal granting stETH holders direct voting power in conjunction with existing DAO token holders. The proposed dual governance system, outlined in Lido Improvement Proposal (LIP) 28, enables stETH holders to participate in a veto mechanism for key protocol decisions, currently reserved for LDO token holders. Under this new system, stETH holders can veto proposals approved by LDO token holders, although they cannot unilaterally push through proposals. The dual governance system aims to increase accountability and decentralization, particularly as Lido dominates Ethereum's staking landscape with over 25% of all ETH staked on the network.
The proposed system introduces a dynamic timelock contract between Lido DAO decisions and their execution, allowing stETH holders to intervene if they strongly oppose a proposal. As users deposit their stETH into a designated escrow contract, the timelock duration increases, triggering a 'rage quit' if discontent reaches a certain threshold, completely blocking the DAO's decision until protesting stakers can withdraw their ETH. This safety valve enables stakers to signal objection and exit while giving the DAO time to respond.
The proposal comes as Ethereum surges over 30% following its Pectra upgrade, which has sparked renewed attention on Ethereum-native applications like Lido, critical to capital flow and validator participation across the chain. The LIP-28 proposal is in its discussion phase, with a formal on-chain vote expected in the coming weeks. If approved, the change could shift governance distribution across Ethereum's staking ecosystem, setting a precedent for other DeFi protocols to include users in decision-making.