- A member of the Lido community has proposed an exit from Polygon.
- The proposal raises issues with Lido’s ROI on Polygon.
- The proposal has sparked a discussion about the best strategy for Lido’s continued success.
After revolutionizing the staking game for Ethereum, liquid staking solution Lido quickly expanded to other protocols, including Terra, Solana, and Polygon. However, with a significant shift in market conditions, the project looks to be retracing its steps.
Following a recent decision to sunset its service on Solana amid rising costs, the community is now debating a similar decision on Polygon.
Is Lido heading towards an Ethereum-only focus?
Poor ROI
On Tuesday, October 17, a member of the Lido community submitted a proposal for the DAO to wind down its liquid staking service on Polygon. The proposer’s main argument is that the venture has offered a poor return on investment.
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The author, “Kent,” highlighted that over the past year, Lido DAO has spent upwards of $3.4 million in incentive payments on the Polygon protocol only to attain about $166k in annual revenue, bashing the project as a waste of resources.
"I am not an active DAO member, but simply a bag holder, and this ROI is a sheer waste of LDO/stETH incentives," they wrote.
Aside from the enormous costs, Kent also raised concerns about Polygon’s roadmap and how multiple significant changes could affect the smooth functioning of the Lido protocol on the blockchain. Citing an instance where a Lido upgrade on Polygon impaired withdrawals for 25 days, the author dubbed the staking protocol’s continued existence on the blockchain a brand risk.
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In sum, they called for an Ethereum-only focus, highlighting the steady growth of the staking market on the blockchain compared to competitors.
The proposal has sparked discussions about the best strategy for Lido’s long-term success.
Potential Trade-Offs
Addressing the call for an Ethereum-only approach, Protocol relations contributor Marin Tvrdić highlighted that such a switch might not be in the best interest of Lido’s growth in light of the 35% total stake ceiling on Ethereum and the continued attacks Lido already faces for its market share dominance.
At the time of writing, Dune analytics data suggests that Lido controls 31.7% of the Ethereum staking market share. Critics have often cited this figure in Ethereum centralization debates as too high.
In light of these uncertainties, Tvrdić suggested that the status quo of Lido’s Ethereum revenue supporting its ventures on other blockchains could easily change.
Tvrdić agreed that the current incentivization arrangement was poor, primarily because it was created under different market conditions. However, he warned that Lido would send warning bells to other teams interested in collaborating with the DAO should it renege and not seek an amicable solution.
At the time of writing, the discussion remains open, and it remains to be seen where the community would lean. Much like Solana, Polygon’s TVL has experienced a steep decline, dropping from a peak of over $9 billion in June 2021 to about $1 billion a year ago and finally to about $687 million, according to Defi Llama data at the time of writing as the extended bear market continues to take its toll.
On the Flipside
- The proposal is still in discussion and has yet to be sent for a community vote.
- The decision to sunset Lido on Solana took over a month from the community discussion to the vote.
Why This Matters
With $13.8 billion in TVL, Lido remains the most popular DeFi liquid staking solution. A Lido exit from Polygon would represent a significant blow to blockchain’s DeFi ecosystem.
Read this to learn more about the reason behind Lido’s Solana exit:
Will Lido Stay on Solana? Dev Team Asks for Funding from Lido DAO
Find out more about FTX’s spending with customer funds:
Witness’ Unraveling of FTX Spending Ignites Clawback Calls
