Now Lido is discussing a notable change to its governance structure that would provide stETH holders greater control. The proposal, called LIP-28, would make staked Ethereum (stETH) holders more powerful. It gives them the ability to push back against harmful decisions made by LDO token voters. Introduced on May 8, LIP-28 would go further and create a decentralization of influence over the Lido protocol.

With LIP-28, stETH holders are afforded a way to essentially veto decisions made by LDO token voters via their own governance mechanism. When the measure comes to an absolute halt at 10% it stops running. To go further you have to withdraw and convert your tokens back into ETH. This provides stETH holders with a direct democratic vote on the future direction of the Lido protocol.

As Flashbots strategist Hasu puts it, LIP-28 might be the “most important Lido upgrade ever.” The proposal notes that it’s necessary to reduce concentration of power over the Lido protocol. This is particularly important given its Total Value Locked (TVL) in ETH.

The new delay mechanism kicks in once LJ deposits exceed 1% of Lido’s ETH TVL. This mechanism is an important safeguard to ensure that no harmful decisions can be executed without the approval of stETH holders.

Today, LDO token voters are routing all this governance power to decide every decision within Lido’s ecosystem. If LIP-28 were to pass, stETH holders would obtain the ability to override governance decisions of LDO token voters. With the introduction of LIP-28, stETH holders will be provided an opportunity to participate in Lido’s governance process.

Lido's ecosystem may be changed by LIP-28. It marks the exciting first concrete step toward distributing and decentralizing governance of the Lido protocol to LDO holders.