What is Lido? How does it work?
Lido is a liquid staking solution backed by industry-leading staking providers. You can stake any amount of SOL with Lido, and receive liquid staking tokens stSOL on a 1:1 basis. Those st-Tokens are updated automatically to reflect staking rewards, and can be used just like any other token in DeFi protocols like Friktion Finance to earn further yields.
What are stSOL tokens?
stSOL represents staked Solana tokens. By holding an st-Token, you earn staking rewards without having to do anything actively. When you hold stSOL the balance remains the same, with the value of the token increasing relative to SOL to reflect the staking rewards.
How is Lido secure?
Lido is a secure liquid staking solution for a number of reasons:
- Open-sourcing & continuous review of all code.
- Smart contracts audited by Quantstamp and Sigma Prime.
- Committee of elected, best-in-class validators to minimise staking risk.
- Use of non-custodial staking service to eliminate counterparty risk.
- Use of DAO for governance decisions & to manage risk factors.
Usually when staking, you choose only one validator. In the case of Lido you stake across many validators, minimising your staking risk.
Learn more here.
What are the risks of staking with Lido?
There exist a number of potential risks when staking using liquid staking protocols.
- Smart contract security
- DAO key management risk
- Slashing risk
- Solana - Technical risk
There is an inherent risk that Lido could contain a smart contract vulnerability or bug. The Lido code is open-sourced, audited and covered by an extensive bug bounty program to minimise this risk.
On early stages of Lido, assets became held across multiple accounts backed by a multi-signature threshold scheme to minimize custody risk. If signatories across a certain threshold lose their key shares, get hacked or go rogue, these funds (<20% of total stake as of April 2022) risk becoming locked.
Validators risk staking penalties, with up to 100% of staked funds at risk if validators fail to validate transactions. To minimise this risk, Lido stakes across multiple professional and reputable node operators with heterogeneous setups, with additional mitigation in the form of cover that is paid from Lido fees.
Lido is built atop experimental technology under active development, and there is no guarantee that Solana has been developed error-free. Any vulnerabilities inherent to Solana brings with it slashing risk, as well as stSOL fluctuation risk.
The Lido DAO is driven to mitigate the above risks and eliminate them entirely to the extent possible. Despite this, they may still exist.
