Lido is the largest liquid staking protocol by total value locked. It allows any ETH holder to participate in Ethereum's proof-of-stake consensus and earn staking rewards — without needing the 32 ETH required to run a validator independently, and without locking up their capital. In exchange for deposited ETH, users receive stETH, a liquid token that represents their stake and accrues rewards in real time. Lido has operated on Ethereum since December 2020 and currently secures a significant share of all staked ETH on the network.
Why Lido exists
Ethereum's transition to proof-of-stake in 2022 created a new way for ETH holders to earn yield: by staking ETH to help validate transactions, participants earn ongoing rewards from the network. But the native staking mechanism has two significant barriers for individual holders.
The first is capital: running an independent validator requires exactly 32 ETH — a threshold that excludes the majority of retail participants. The second is liquidity: staked ETH is locked in the consensus layer and cannot be used elsewhere. An investor who stakes ETH directly cannot lend it, trade it, or deploy it in DeFi while it is earning staking rewards. The capital is productive in one sense and entirely illiquid in another.
Lido removes both barriers. By pooling ETH from many depositors, it enables participation in staking at any size — a holder with 0.1 ETH can stake and earn rewards proportionally alongside holders of thousands of ETH. And by issuing stETH in return, Lido gives depositors a liquid representation of their staked position: stETH can be held, sold, used as collateral in lending protocols, or deployed across DeFi while the underlying ETH continues to earn staking rewards.
How the protocol works
ETH pooling and validator operation. When a user deposits ETH into Lido, it is pooled with deposits from other users and assigned to node operators — professional entities or community participants who run Ethereum validators on Lido's behalf. Node operators are responsible for the technical work of maintaining validators, proposing blocks, and participating in consensus. In exchange, they receive a share of the staking rewards generated by the validators they operate.
stETH — the liquid staking token. For every ETH deposited, Lido mints stETH at a 1:1 ratio. stETH is a rebasing token: its balance in a user's wallet increases automatically each day as staking rewards are earned, without any action required. A holder of 10 stETH today will see that balance rise over time as the underlying ETH earns network rewards. stETH is transferable, tradeable on secondary markets, accepted as collateral in major lending protocols, and usable across the DeFi ecosystem — making staked ETH a productive asset rather than a locked one.
The 10% fee. Lido applies a 10% fee on all staking rewards earned by depositors. This fee is split between node operators (who receive compensation for running validators) and the Lido DAO treasury. The remaining 90% of staking rewards flows to stETH holders through the daily rebasing mechanism. The fee percentage is set by DAO governance and represents the protocol's direct economic take from the staking activity it facilitates.
Node operator set and staking router. Lido manages a curated set of node operators across multiple staking modules, including an established permissioned module and a newer Community Staking Module that enables broader, more permissionless participation. The Staking Router coordinates ETH allocation across these modules, balancing capacity, performance, and risk across the operator set.
How Lido makes money
Lido's revenue model is structurally different from most DeFi protocols — it does not depend on trading volume, borrowing demand, or user transaction frequency. Revenue is a direct function of two variables: the amount of ETH staked through Lido, and the Ethereum network's staking reward rate.
The 10% fee on staking rewards. Every reward earned by staked ETH passes through Lido, and 10% is retained before the remainder reaches stETH holders. At any given staking reward rate, Lido's revenue scales linearly with TVL: twice the staked ETH generates twice the fee revenue at the same rate. This simplicity makes Lido's revenue more predictable than most DeFi protocols — it follows a clear formula rather than fluctuating with market sentiment or protocol-specific demand cycles.
Node operator share. A portion of the 10% fee goes to node operators as compensation for running validators. This is a cost of revenue rather than protocol profit — the DAO treasury receives only its designated share of the fee, not the full 10%.
LDO Accumulation Programme. Lido governance has approved programmes to use treasury stETH to purchase LDO tokens in the open market. These buybacks direct a portion of the protocol's accumulated treasury value toward reducing LDO's circulating supply — creating an indirect connection between protocol revenue and token economics, though LDO holders do not receive direct distributions of staking fee income.
Reading Lido's metrics
TVL. Lido's TVL is structurally different from the TVL of a lending protocol or DEX. It represents real ETH staked and earning network rewards — not collateral posted to enable borrowing, and not liquidity supplied to enable trading. This ETH is genuinely productive: it is securing Ethereum's consensus layer and generating rewards for depositors. TVL growth therefore signals both protocol adoption and an expanding revenue base, with no equivalent of "mercenary liquidity" inflating the figure.
The primary metric to watch alongside TVL is Lido's share of total staked ETH on Ethereum. This share determines Lido's competitive position and also its regulatory and decentralisation risk profile — a higher market share strengthens the revenue base but increases concerns about systemic concentration.
Protocol revenue. Because Lido's revenue is a fixed percentage of staking rewards, it fluctuates with the Ethereum network's staking APR in addition to TVL. When staking rewards rise — due to higher network activity, more MEV captured, or changes in validator economics — Lido earns more per unit of TVL. When rewards compress, revenue per ETH falls even if TVL is stable. Tracking the 30-day revenue trend alongside TVL changes distinguishes between these two drivers.
FDV/TVL. Lido's FDV/TVL is structurally very low — TVL is denominated in ETH, which makes it large in dollar terms relative to Lido's market cap. This ratio reflects the market's assessment of Lido's earnings power and competitive durability, not a conventional valuation multiple. It is best used as a relative comparison to other liquid staking protocols rather than interpreted in absolute terms.
Risk factors
Ethereum staking concentration. Lido stakes a significant share of all ETH in the Ethereum validator set. This concentration creates systemic risk at the network level: if Lido's node operators experienced coordinated downtime or a governance failure, the impact would extend beyond Lido users to Ethereum's consensus stability. The Ethereum developer community has consistently flagged this as a concern, and regulatory bodies may view dominant staking providers as critical infrastructure subject to oversight.
stETH depeg risk. stETH trades on secondary markets and its price can deviate from ETH. While the introduction of Ethereum's staking withdrawal mechanism has anchored stETH much closer to ETH parity than in earlier periods, a rapid market-wide exit from liquid staking positions or a loss of confidence in Lido's node operators could push stETH below parity — creating losses for users who need to sell rather than hold to earn rewards.
Node operator risk. Validator performance depends on the quality and reliability of Lido's node operators. Poor performance, slashing events (penalties for validator misbehaviour), or a failure of a significant operator could reduce rewards for stETH holders or create losses. The permissioned model historically mitigated this through due diligence on operators; the Community Staking Module introduces more participants and therefore more variance in performance.
Governance and LDO token utility. LDO is a governance token — its holders vote on protocol parameters but do not receive direct distributions of staking revenue. The indirect connection between protocol revenue and LDO value (via buybacks and treasury management) is a governance decision that can be changed or discontinued. Investors evaluating LDO on an earnings basis should account for the distinction between protocol revenue and token holder distributions.
Regulatory risk. Liquid staking protocols that manage large quantities of validator infrastructure may be subject to financial regulation in major jurisdictions — particularly where staking services are classified as securities or investment products. Regulatory action targeting Lido or liquid staking generally could affect the protocol's operations or stETH's usability in DeFi.
How to monitor Lido without daily research
The key signals are TVL trend (is more ETH flowing in or out?), the 30-day revenue trajectory (how is it tracking against staking APR changes?), and Lido's share of total staked ETH as a competitive positioning indicator. TokenSignal tracks Lido's core metrics automatically — add LDO to your watchlist for a daily digest and alerts when meaningful changes occur. Free for up to 5 assets.
Related: What is TVL in DeFi? · Ethereum: Network Overview, Metrics & Fundamentals