We can picture someone like Sarah, an independent single mom who invested her life savings into stETH to benefit from a more predictable, passive income stream. Most importantly, she trusted in the idea of decentralized finance, that DF was a universe where everyone could participate and be heard. Now, Lido’s trying to spin this up again with “Dual Governance,” allegedly giving stETH holders like Sarah real power. Is this truly a victory for the little guy, or just a clever reshuffling of the deck, leaving Sarah and others like her vulnerable to new forms of centralized control?

Genuine Empowerment Or a Mirage

And yet, the headlines shout decentralization, empowerment, and community governance. To help stETH holders address governance risks, last year Lido proposed LIP-28. This new initiative offers a counter-proposal mechanism, giving them the ability to contest decisions made solely by LDO token holders. The real trump card now rests with LDO holders. They could then decide to act in their own interests at the expense of those stETH holders who do actually provide the real liquidity.

I'm not convinced that this is the revolution it's being painted as. This condition strikes us as analogous to a politician campaigning with middle-income tax cuts. At the same time, they’re quietly writing in loopholes that benefit the ultra-rich.

Who really benefits from this new system?

The Whale Games Are About to Begin

The devil, as always, is in the details. This new “counter-proposal mechanism” forces stETH holders to deposit their tokens into escrow to contest an unfavorable proposal. This is all very democratic, until you start to think about what this really means.

Think about it. And who has the capital to stake a large amount of stETH for 1+ years? Not Sarah. Not the average stETH holder. But the whales? The big institutional investors who previously lobbied the government to rein in their power in the DeFi space. Absolutely.

This system, while ostensibly giving stETH holders a voice, de facto creates a new form of oligarchy, where a handful of stETH whales can effectively veto any decision they don't like. Most importantly, it shifts the locus of control from LDO token holders to stETH whales. Congratulations, we've simply changed the gatekeepers. Is this progress really, or simply centralization in a different color?

Lido manages approximately 27% of all staked ETH. This is an enormous amount of influence collected in a single protocol. Rewarding the people that control the most stETH is akin to giving someone that already controls a whole bunch of sweets the keys to the candy store. Frankly, that just doesn’t add up!

Smart Contracts, Dumb Decisions?

The safeguard mechanism would be deployed through a smart contract. Great. We all love smart contracts, right? Immutable code, trustless execution, the whole shebang. At the end of the day, smart contracts are only as good as the people writing them. Even the most carefully audited smart contract is still subject to unintended consequences.

What happens if there's a loophole? What happens when a savvy player finds a loophole to game the system? They might do flash loans or other DeFi scrubbed techniques to exploit the governance process. Consider too that these whales have resources and expertise at their immediate disposal that an average stETH holder can’t even imagine.

I’m reminded of the 2008 financial crisis. Complicated financial machinations, such as collateralized debt obligations (CDOs), were meant to spread around the risk. Instead, they supercharged it, causing a worldwide crisis. Are we about to make the same mistake all over again? While it would appear that this intricate governance structure completely decentralizes the power over protocol direction, it would in fact centralize it among a few astute actors.

Hasu, a strategist with Flashbots, who has called this the “most important Lido upgrade of all times.” Perhaps he is correct but not quite in the way he thinks. This upgrade has the potential to be the most consequential one yet. It will make even more potent those stETH whales’ powers and entrench Lido’s market dominance in the liquid staking arena.

FeaturePromised BenefitPotential Pitfall
stETH Holder Counter-ProposalsIncreased influence for stETH holdersDomination by stETH whales, marginalizing smaller holders
Smart Contract ImplementationTrustless and transparent governancePotential for loopholes, manipulation by sophisticated actors
Decentralization of InfluenceMore balanced decision-makingShift of power, not true decentralization, creating new power imbalances.

Don't blindly accept the narrative of decentralization. Read the fine print. Analyze the smart contract. Demand transparency. Question the motives. If you are a holder of stETH, now is the time to make your voice heard. Organize. Advocate for safeguards to prevent manipulation.

Lido’s decision could dictate the future of the entire DeFi industry. We need to ensure that this new precedent actually puts power into people’s hands. Let’s not make it a cleverly disguised federal power grab. The future of DeFi — and Sarah’s financial security — could very well hinge on it.

Don't blindly accept the narrative of decentralization. Read the fine print. Analyze the smart contract. Demand transparency. Question the motives. If you're a stETH holder, voice your concerns. Organize. Advocate for safeguards to prevent manipulation.

Lido's move could set a precedent for the entire DeFi industry. It's up to us to ensure that this precedent is one of genuine empowerment, not just a cleverly disguised power grab. The future of DeFi, and Sarah's financial security, may depend on it.