Lido DAO has proposed spending up to 10,000 stETH to buy its own governance token at what it calls a historically depressed valuation. This equates to around $20 million at the current ether price near $2,000.
The problem is knowing where to spend it.
Onchain LDO liquidity sits at around $90,000 depth at plus or minus 2%, according to the proposal released by the Lido Ecosystem Operations team this weekend. Measuring market depth means that a transaction of this value could move the price of the token by up to 2%.
A single batch of 1,000 stETH running on-chain would explode available liquidity several times over, meaning Ethereum’s largest liquid staking protocol must be off-chain to purchase its own token at scale.
The proposal authorizes the Lido Growth Committee to route transactions through centralized exchanges, including Binance, OKX, Bybit, Gate and Bitget, each of which currently offers more than $100,000 in depth. This also allows the committee to engage market-making partners on behalf of the Lido Ecosystem Foundation to facilitate execution.
Promote governance
LDO hit an all-time low of $0.27 on March 7 and is currently trading near $0.30, according to CoinGecko data, with a market cap of around $258 million.
The token is down more than 95% from its 2021 high of $7.30. At current prices, the proposed buyout could use approximately 65 million tokens, or approximately 8% of the circulating supply.
The case for the DAO rests on a gap between the performance of the tokens and the fundamentals of the protocol. The LDO/ETH ratio sits at around 0.00016, a 70% reduction from levels that have held steady for most of the past two years.
In contrast, the protocol’s net rewards only fell about 20% over the same period, while costs improved 13% year-over-year and the protocol’s effective membership rate increased from 5% to 6.11%. Lido still holds the largest share of the staked ether, at around 23%, according to DefiLlama.
“This is not a typical fluctuation,” the proposal states. “This represents one of the most significant dislocations between the market price of LDO and the fundamentals of its underlying protocol in the history of the token.”
Execution would occur in batches of 1,000 stETH, each requiring a separate Easy Track motion – a governance mechanism for routine or approved operations – with a three-day objection period. The growth committee retains discretion over timing and pace to avoid reporting specific moves to the market, a necessary precaution given that the proposal is public. Slippage is capped at 3% below the reference price.
The deeper question the proposal raises is one facing DeFi governance tokens as a whole. The 95% drop in LDO from the peak is extreme, but it is not an outlier in the category. A protocol that dominates its industry, generates consistent fees, and holds billions of TVL is trading at a market cap of $258 million because the market has largely reassessed the value of a governance token when it controls a fee change but distributes nothing.
Lido’s response is to view the dislocation as a buying opportunity. Whether this works depends on whether the market ever decides that governance tokens are worth trading based on fundamentals.
