Jakov Buratović discusses Lido’s protocol upgrades and what's next in store for the platform.

Within the vibrant atmosphere of the Hack Seasons Dubai We had the opportunity to sit down with Jakov Buratović - a leading figure in DeFi and contributor to Lido DAO - to explore the intricacies of Lido's staking protocol. He shared valuable insights, ranging from the mechanics of liquid staking to governance approaches and what lies ahead for Lido and DeFi.

Could you explain the workings of staking within Lido Finance, specifically touching on liquid staking?

By using Lido's liquid staking protocol, you can deposit your assets. Once you deposit your ETH, you receive a corresponding token, known as staked ETH, which is an ERC20 token. This token can be traded on the secondary market and fits seamlessly into the DeFi ecosystem.

The ETH you deposit is spread out among several validators, which is an added benefit; if you manage a personal validator, you carry all the risks. In case your validator encounters issues, you miss out on rewards and risk being penalized.

In Lido's setup, depositing your ETH allows for distribution across multiple validators, creating a sturdier system that ensures consistent reward returns.

How are staking rewards allocated to participants in the Lido staking pool?

Staked ETH undergoes a rebase event daily, enabling users to see an updated balance in their wallets. This effectively provides real-time reward distribution, while wrapped staked ETH also experiences this, though the displayed balance remains unchanged—only the token's value fluctuates.

In essence, staking rewards are distributed daily through rebase events to all holders of staked ETH and wrapped staked ETH.

Are there other avenues for users to earn rewards on Lido apart from staking?

Within the realm of the Lido protocol, staking is the primary option to earn validator rewards. Nonetheless, thanks to its permissionless design and composability, various third-party protocols introduce a wealth of opportunities. For instance, you can utilize staked ETH to provide liquidity for traders, generating trading fees from their activity.

Furthermore, staked ETH can serve as collateral in lending markets. If the lending market has a natural draw for capital supply, you have the chance to gain further rewards from that involvement. Alternatively, you can strategize using existing protocols designed for such endeavors. There’s an expansive range of options in DeFi to maximize the use of staked ETH while considering your risk appetite.

How does Lido tackle regulatory risks for its users and stakeholders?

There are multiple perspectives from which to address risks. The primary approach is to maintain a minimal yet effective infrastructure required for staking services, which necessitates simplicity in the entire codebase and protocol. When focusing on security, Lido sets itself apart with nine independent audits conducted by top-tier firms on Lido V2, coupled with a substantial bug bounty program critical for ensuring protocol security.

This bug bounty initiative allows security specialists to highlight potential vulnerabilities in the live code, providing incentives for ethical hackers to discover additional systemic weaknesses.

Can you describe the process for adding new nodes and validators to the system?

The protocol kicked off with five professional node operators. Since its inception, Lido DAO has welcomed five onboarding waves through governance voting, leading to the inclusion of 37 high-performing node operators today. The DAO also voted to implement a straightforward DVT module, fostering a more resilient system by incorporating infrastructure projects such as SSV and Obol.

At the validator level, the responsibility is spread across multiple operators, negating a single point of failure. For instance, you don’t have to rely on one validator with 100% uptime; instead, a collective of three out of four operators can support a single validator, enhancing system robustness and increasing the scalability for more node operators, thereby promoting decentralization and security.

Could you discuss the workings of the DAO? How do decisions get made concerning protocol upgrades, fee structures, and strategic alliances?

Typically, discussions originate within the community, with the Lido research forums serving as the ideal platform for proposal generation.

Once a consensus is reached through community dialogue, depending on the proposal's nature, it may proceed to a snapshot vote on an off-chain voting platform for preliminary checks or formal acknowledgments. However, significant actions such as fund migrations from the treasury or major protocol upgrades require complete on-chain votes via Aragon. Thus, proposals are categorized for either off-chain or on-chain voting based on their significance.

Additionally, certain subcommittees within the DAO have voting rights and permissions to function autonomously, as operating as a DAO presents many advantages but also notable challenges. One particularly evident challenge across all DAOs is the level of voter engagement.

Lido V2 brings key updates to the platform, including a Staking Router and support for various Node Operators. How do these enhancements bolster Lido's decentralization and security?

Among the standout features introduced in Lido V2 are a Staking Router and a focus on supporting diverse Node Operators. Prior to this upgrade, exiting from a staked position was impossible without secondary market trades; users had to swap or trade to regain ETH or other tokens. Now, users can directly request withdrawals from the protocol once their withdrawal request matures, dependent on the underlying protocol and exit queue, making claiming back your original ETH much easier.

Another critical upgrade is the modular Staking Router, aimed at facilitating the onboarding of new, permissionless node operators and validators through new modules, eliminating the necessity to be listed in the curated node operator registry.

Are there any exciting new features, partnerships, or integrations planned that will enhance the platform's functionality and value for stakeholders?

Looking ahead to network expansion, particularly with BNB Chain, there's a two-phase voting process underway to bring wstETH to BNB. The first phase involved selecting the best proposal or team to create the bridge, with Wormhole and Axelar receiving the nod. The second phase will follow deployment, culminating in the DAO's formal acceptance of wstETH on BNB.