Lido Finance, the largest liquidity staking platform in the Ethereum ecosystem, recently proposed an important governance proposal called LIP-28, which aims to grant veto power over key protocol decisions to millions of stETH (Lido Staked ETH) holders, potentially having a profound impact on governance models in the entire DeFi sector.
Currently, governance voting rights are primarily held by LDO (Lido DAO's governance token) holders. The LIP-28 proposal seeks to introduce a dual governance system. This means that even if LDO holders vote to pass a resolution, if the resolution raises widespread concerns among stETH holders, the latter will have the opportunity to prevent its final execution.
The move aims to more effectively balance the interests between protocol governance token holders and the protocol's primary users (i.e., ETH stakers), ensuring that the protocol's development direction better serves the broader user base. How this bold initiative will operate and what changes it will bring to DeFi governance remains to be observed.
Dual Governance Mechanism Explained: "Time Lock" and "Rage Quit"
The key to this dual governance system is the addition of a special "timelock contract" between any decision made by Lido DAO and its final execution, providing a window for stETH holders to intervene.
Specifically, if stETH holders are dissatisfied with a proposal, they can deposit their assets into a designated escrow contract as a form of protest. When the deposited stETH reaches the first threshold (First Seal, initially set at 1% of total staked ETH), the timelock duration will be extended, giving stETH holders more time to express objections and retain control of their assets.
If the protest scale further expands, reaching the second threshold (Second Seal, initially set at 10% of Lido's total locked ETH value), it will trigger the "rage quit" clause.
At this point, the execution of the DAO decision will be completely blocked, forming an effective "safety valve" that allows stakers to safely exit if they disagree with protocol changes (if many stakers exit, the time will become longer), while also giving the DAO time to review, respond to, or cancel controversial proposals.
Under this system, the minimum execution delay for any proposal is three days; after reaching the first threshold, the minimum timelock will be extended to at least five days. Additionally, the DAO can actively cancel proposals during the timelock period.
Outlook and Challenges: The Future Path of the LIP-28 Proposal
According to the current status, the LIP-28 proposal is still in the community discussion phase and is expected to enter the formal on-chain voting procedure soon.
Although the proposal aims to enhance governance efficiency and protect staker rights, its implementation may face challenges such as technical complexity and the difficulty of effectively coordinating between different stakeholders (including LDO holders, stETH holders, and node operators).
However, once the proposal is passed and successfully implemented, it is expected to have a significant positive impact on Lido protocol's long-term health and user trust. Lido's bold attempt and its potential profound implications for the future of decentralized governance deserve continued market attention.
