The Consequences of a Lido Shutdown on Ethereum
While Ethereum is not without its flaws, if regulators were to shut down Lido, it could have serious implications for the network. According to Ryan, this could result in a loss of liveliness for the network, where final decisions may not be economically viable.
Potential Measures Against Lido
If Lido continues on its current trajectory without any self-imposed limits, the Ethereum community may resort to drastic measures. This could include socially ostracizing Lido through a soft fork that dismisses their attestations, potentially resulting in an ETH loss.
In more extreme cases, a hard fork to divest Lido’s assets could be considered. However, Ryan warns that this would have catastrophic consequences for both Lido stakeholders and the entire Ethereum ecosystem, possibly leading to a blockchain “civil war.”
The Importance of Non-Profit LSDs
Ryan’s concerns are further highlighted in his recent article on Liquid Staking Derivatives (LSDs) like Lido. He explains the risks associated with these platforms when they exceed consensus thresholds, such as cartelization of block space.
He also discusses the potential consequences of surpassing these limits, including coordinated MEV extraction, block-timing manipulation, and censorship. Ryan presents a choice for LSD protocols regarding their governance structure and emphasizes the need for self-imposed limits to prevent cartel behaviors.
Ethereum User Representation and Risk Recognition
Ryan argues that staked ETH does not necessarily represent all Ethereum users. Therefore, allowing ETH stakeholders to govern LSD protocols may not accurately reflect the broader user base. He urges LSD products like Lido to set their own limits and advises investors to be aware of the risks involved.
Concerns Echoed by Others
Ryan is not alone in expressing concerns about Lido’s dominance. Another Ethereum user, Superphiz.eth, previously warned against allowing the protocol to gain more market share and called for a self-limit rule. However, Lido stakeholders voted against implementing such a rule with an overwhelming majority.
At the time of writing, ETH is trading at $1,614.
Hot Take: The Need for Self-Imposed Limits in the Liquid Staking Derivatives Space
Recent discussions surrounding Lido and its potential impact on the Ethereum network have highlighted the importance of self-imposed limits in the liquid staking derivatives space. While regulators shutting down Lido could have severe consequences for Ethereum’s liveliness, the community is considering various measures to address the issue. Ryan’s warnings about cartelization and governance structures further emphasize the need for caution and risk recognition in this emerging sector. As stakeholders and investors, it is crucial to understand these risks and support LSD protocols that prioritize transparency, decentralization, and long-term sustainability.
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