Lido Finance, the largest liquid staking protocol on Ethereum, has successfully transitioned to version 2, a crucial update that now allows users to withdraw ether from its platform.
The upgrade to version 2 was approved through an on-chain vote, with some community members scrutinizing the proposal. The decision, denoted as governance vote number 156, was initiated on May 12 and affirmed today via the Aragon platform.
The finalization of the upgrade vote came today at 1:15 pm ET, following the Shapella hard fork last month, which permitted staking validators to withdraw ether. Lido took an additional month to accommodate withdrawals, necessitated by several security audits.
A standout feature of Lido V2 is that it allows liquid staking users, or staked ether (stETH) holders, to withdraw from Lido at a 1:1 ratio. This advancement simplifies the process of entry and exit from Ethereum’s liquid staking.
Staked ether, a derivative of ether provided by Lido Finance, is given when users deposit ETH, with the protocol issuing stETH in return. This token frees up the underlying capital, allowing it to be reused as collateral in other DeFi projects. Currently, over 6.1 million ether (ETH), worth roughly $12 billion, is staked on Ethereum through Lido.
Starting today, stETH holders can submit a withdrawal request. Once made, an oracle will determine which Lido operators need to exit validator nodes to fulfill this request. Subsequently, Lido operators will request a validator exit, which will be submitted to a consensus node on the Ethereum mainnet. Once the assigned validators have exited, stETH holders can redeem their ETH.
“The roll-out of Lido V2 is an evolutionary leap in the Lido protocol’s architecture, heralding both the capability for stETH holders to unstake their stETH in-protocol for ETH,” commented Isidoros Passadis, a Lido DAO contributor and Master of Validators. “Straightforward, user-friendly, and prompt withdrawals are fundamental for a comprehensive staking product.”
Initially, Lido will facilitate faster individual withdrawals from a “withdrawals vault” holding ETH. Following the Lido V2 upgrade, roughly 270,000 ETH ($490 million) in the vault will be readily accessible to handle withdrawal requests, sidestepping a drawn-out validator exit process.
This upgrade is of particular importance to bankrupt lender Celsius, which possesses over 400,000 stETH ($720 million) via Lido Finance, according to Nansen data. Celsius faced liquidity issues last year, hindering their conversion of stETH holdings back to ETH to meet user withdrawal requests. With Lido now enabling withdrawals, they should be able to reclaim their ETH and potentially accommodate user withdrawal requests.
Lido Finance V2 also introduces the “Staking Router,” a novel feature that promises a modular infrastructure for liquid staking. The Staking Router facilitates the introduction of new types of node operators on Lido, from solo stakers to DAOs that could operate validators either independently or collaboratively through technologies like Distributed Validator Technology (DVT). This addition is projected to significantly strengthen the network’s decentralization.
