What is Lido Finance? stETH, wstETH and Ethereum Liquid Staking Explained

Lido Finance is the world's largest liquid staking protocol. It allows users to stake Ether (ETH) on the Ethereum Beacon Chain without running a validator node and without locking up their assets. When a user deposits ETH into Lido, they receive stETH (staked ETH) — a liquid token that represents their staked position and automatically accrues Ethereum consensus layer rewards each day.

Launched in December 2020, immediately after Ethereum's Beacon Chain genesis, Lido has grown to hold over $20 billion in staked ETH, representing approximately 30% of all staked Ether on Ethereum. Its dominance has made stETH one of the most composable and widely used assets in on-chain finance, deeply integrated into Aave, MakerDAO, Curve, Pendle, EigenLayer, and dozens of other protocols.

How Lido Liquid Staking Works

Ethereum's proof-of-stake system requires validators to lock 32 ETH per node. Native staking is therefore inaccessible to users with less than 32 ETH, and illiquid for anyone who needs access to their funds during the staking period. Lido solves both constraints by pooling ETH deposits from multiple users and distributing them to a curated set of professional node operators.

When a user deposits ETH into Lido, three things happen: (1) the ETH is queued for distribution to Lido's validator network; (2) the user immediately receives an equivalent amount of stETH in their wallet; and (3) the stETH balance begins rebasing daily to reflect accrued consensus rewards. There is no minimum deposit — users can stake any amount of ETH through Lido.

Lido's validator network consists of vetted professional node operators including firms such as P2P Validator, Chorus One, Stakefish, and others selected and monitored by the Lido DAO. All rewards from the validator network are passed through to stETH holders after a 10% fee, split between node operators and the Lido DAO treasury.

stETH and wstETH: Lido's Liquid Staking Tokens

stETH (staked ETH) is a rebasing token — its balance in your wallet automatically increases daily as Ethereum staking rewards are distributed. If you hold 10 stETH at a 4% annual staking APR, your wallet balance increases by approximately 0.0011 stETH per day. This rebasing mechanic means stETH maintains an approximately 1:1 relationship with ETH by balance.

wstETH (wrapped stETH) is a non-rebasing wrapper around stETH. Rather than the holder's balance increasing, the exchange rate between wstETH and stETH grows over time — one wstETH is worth progressively more stETH each day as rewards accumulate. This makes wstETH the preferred form for DeFi protocol integrations: most smart contracts (lending protocols, AMMs) cannot natively handle rebasing tokens, so they use wstETH instead.

Both stETH and wstETH represent the same underlying staked position and earn the same yield. The choice between them is purely technical: stETH for portfolios where daily balance growth visibility matters; wstETH for DeFi integrations where ERC-20 compatibility is required. You can wrap and unwrap between them at any time without fees.

LDO Token and Governance

LDO is Lido Finance's native governance token. Holders vote on protocol decisions including node operator additions and removals, fee parameter changes, smart contract upgrades, cross-chain deployments, and treasury allocations. The Lido DAO has one of the most active governance communities in DeFi.

LDO has a total supply of 1 billion tokens. The initial allocation distributed 36.32% to founders and initial investors (subject to a one-year lock and one-year vesting), 15% to validators and early contributors, 6.5% to initial developers, and the remainder to the DAO treasury for ecosystem development. LDO's role is purely governance — it does not directly receive staking rewards or protocol revenue.

The Lido DAO manages one of the largest DAO treasuries in DeFi and uses it to fund protocol security audits, node operator incentives, integration partnerships, and research. Major LDO governance decisions require on-chain voting with a quorum threshold.

stETH Across DeFi: Composability and Key Integrations

stETH and wstETH have become among the most composable collateral assets in DeFi. Key integrations include: Aave V3 (wstETH as collateral for borrowing USDC, ETH, or GHO at the highest LTV tiers); MakerDAO/Sky (wstETH as collateral for minting DAI/USDS); Spark Protocol (wstETH lending markets); Curve Finance (stETH/ETH pool, historically one of the largest Curve pools); Balancer (wstETH/ETH weighted pools); Pendle Finance (wstETH yield tokenisation — split into principal and yield components); and EigenLayer (wstETH as a restakeable asset earning additional AVS rewards).

This breadth of integration creates a flywheel: more DeFi composability means more demand to hold stETH, which grows Lido's TVL, which attracts more node operators and expands DAO resources to deepen integrations further. It is also the source of Lido's most significant systemic criticism: its dominance raises concerns about Ethereum validator centralisation.

Lido Risks and Decentralisation Concerns

Lido's most widely cited risk is systemic: with approximately 30% of all staked ETH controlled by Lido's node operator set, a vulnerability in Lido's contracts, a consensus bug affecting Lido validators, or coordinated misconduct by the operator network could have outsized consequences for Ethereum's security and neutrality.

The Lido DAO responded to these concerns by developing dual governance — a mechanism that gives stETH holders a veto over governance decisions. If enough stETH holders oppose a proposal, the system triggers a time-lock allowing stakers to exit before any potentially harmful change takes effect, protecting stakers from adversarial LDO governance.

Additional risks include: smart contract risk in Lido's own contracts (extensively audited but not zero); Ethereum validator slashing (if Lido node operators are penalised by consensus rules); stETH/ETH depegging (stETH briefly traded at a 5–7% discount during the June 2022 Celsius crisis as distressed selling created supply-demand imbalances); and dependency on a curated operator set rather than a fully permissionless system.

Frequently Asked Questions

• What is Lido Finance? Lido Finance is the world's largest liquid staking protocol for Ethereum. Users deposit ETH and receive stETH — a liquid token that earns Ethereum consensus rewards daily and can be used freely across DeFi. Lido holds approximately 30% of all staked ETH on Ethereum.
• What is stETH? stETH (staked ETH) is Lido's liquid staking receipt token. Each stETH represents one staked ETH in Lido's validator network. The stETH balance in your wallet automatically increases daily as Ethereum consensus rewards are distributed — if you hold 10 stETH, your balance grows slightly each day, passively accumulating yield.
• What is the difference between stETH and wstETH? stETH is rebasing — its wallet balance increases daily to reflect rewards. wstETH is non-rebasing — your balance stays constant but the exchange rate between wstETH and stETH grows over time. Use wstETH for DeFi integrations (Aave, MakerDAO, Curve), as most protocols cannot handle rebasing tokens natively.
• What is the Lido staking APR? Lido's APR fluctuates with Ethereum network conditions — validator rewards depend on network activity, MEV income, and total staked ETH. As of May 2026, Lido stETH earns approximately 3–4% APR from Ethereum consensus rewards, after Lido's 10% protocol fee.
• What are Lido's fees? Lido charges 10% of all staking rewards. This fee is split between node operators (who run the validators) and the Lido DAO treasury. There are no deposit or withdrawal fees.
• Can I unstake ETH from Lido? Yes. Following Ethereum's Shapella upgrade in April 2023, which enabled Beacon Chain withdrawals, Lido implemented a withdrawal queue. You submit a withdrawal request and receive ETH once it is processed — typically within 1–5 days depending on Ethereum's withdrawal queue length. Alternatively, sell stETH on Curve or Uniswap for near-instant liquidity.
• What is wstETH? wstETH (wrapped stETH) is a non-rebasing form of stETH. Its value relative to stETH grows over time as rewards accumulate, rather than your balance increasing. wstETH is ERC-20 compatible and is the preferred form for use in DeFi protocols including Aave, MakerDAO, Pendle, and EigenLayer.
• What is the LDO token? LDO is Lido's governance token. Holders vote on protocol decisions including node operator selections, fee structures, smart contract upgrades, and treasury allocations. LDO provides governance rights only — it does not earn staking rewards or direct protocol revenue.
• Is Lido Finance safe? Lido has been extensively audited and operated without a major exploit since 2020. Key risks include smart contract vulnerabilities, Ethereum validator slashing, stETH depegging in secondary markets during market stress, and centralisation risk from Lido's approximately 30% share of total staked ETH.
• What happened to stETH in June 2022? During the Celsius Network liquidity crisis, stETH briefly traded at a 5–7% discount to ETH on secondary markets. Celsius and other large stETH holders were forced to sell rapidly, creating a temporary supply-demand imbalance. The discount recovered as immediate selling pressure subsided.
• What is Lido dual governance? Lido dual governance is a mechanism designed to protect stETH holders from potentially harmful LDO governance decisions. If enough stETH holders oppose a proposal, it triggers a time-lock period — giving stakers time to exit via the withdrawal queue before any change takes effect.
• What DeFi protocols use stETH or wstETH? wstETH is accepted as collateral on Aave V3, MakerDAO/Sky, Spark Protocol, and Compound. It is also usable in Curve and Balancer pools, tokenisable for yield trading on Pendle Finance, and restakeable on EigenLayer. stETH's DeFi integrations are among the deepest of any non-ETH asset.
• How does Lido compare to Rocket Pool? Rocket Pool is a permissionless liquid staking protocol where node operators can participate with 8 or 16 ETH rather than the full 32 ETH. This makes Rocket Pool more decentralised than Lido's curated operator model. Lido offers greater liquidity and deeper DeFi integrations; Rocket Pool offers a more trustless staking architecture. Both are legitimate liquid staking options.
• What is the Lido DAO treasury? The Lido DAO treasury holds LDO tokens and stablecoins, making it one of the largest DAO treasuries in DeFi. It funds protocol development, security audits, node operator incentives, integration partnerships, and ecosystem grants, all governed by LDO holder votes.
• Does Lido Finance support chains other than Ethereum? Lido's core product is Ethereum liquid staking via stETH/wstETH. The DAO has strategically refocused on Ethereum following governance votes, discontinuing support for other chains that were previously offered. As of 2025–2026, Ethereum is Lido's primary and dominant market.