The Lido community has recently put forth a proposal to terminate its involvement in the Polygon network, citing a series of challenges and uncertainties. This move reflects a growing trend among crypto projects reassessing their positions in the ever-evolving blockchain landscape.
Lido Decision on Solana Staking
Before delving into the reasons for Lido’s exit from Polygon, it’s important to note that Lido Finance, a decentralized liquid staking leader, previously announced that it would no longer accept new staking requests for Solana (SOL) tokens due to a majority vote by Lido’s LDO token holders.
Furthermore, new users can no longer stake SOL on Lido, and by February 2024, the platform’s front end will also discontinue the ability to unstake existing tokens.
Why Lido Aims To Discontinue Its Services on Polygon
The Lido community expressed concerns over the lackluster financial performance of its presence on Polygon, which led to the proposal to discontinue its services.
However, despite having a total value locked (TVL) of approximately 151 million MATIC (equivalent to $86 million), the revenue generated by Lido on Polygon was deemed insufficient. Calculations revealed that the fees collected by Lido DAO amounted to just $166,863 per year.
In addition, this figure was overshadowed by the substantial incentives offered to Shard Labs to meet staking market goals, resulting in a poor return on investment. Over the past year, Lido spent over 2.1 million LDO, or about $3.4 million, to achieve this meager revenue.
Moreover, Lido on Polygon underwent a technical upgrade that inadvertently introduced a bug, preventing withdrawals for 25 days.
Although no major issues arose during this period, it raised concerns about the protocol’s reputation, especially considering the significant assets it manages, amounting to $15 billion. The Lido community recognized the importance of safeguarding its brand image in the cryptocurrency space.
Uncertainties in Polygon’s Roadmap
The rapidly evolving nature of Polygon’s roadmap raised concerns in the Lido community. Polygon’s plan to become a restaking layer and a base layer for new app chains created uncertainty, especially with the emergence of competitors like Eigenlayer.
Additionally, Polygon’s migration to a new token and a multi-year technical architecture overhaul added to the complexity and potential risks. The lack of competition in the liquid staking provider space on Polygon. It contrasted starkly with the vibrant staking market on Ethereum.
The Way Forward
In light of these challenges and uncertainties, the proposal to discontinue Lido’s presence on Polygon and refocus as a native Ethereum liquid staking provider has gained momentum. The community aims to mitigate risks and explore more promising avenues for growth in the ever-evolving crypto landscape.
Following the recent proposal, the price of Lido DAO declined by 3.86% to $1.48, while its trading volume increased by 2.76% to $40.67 million from the previous day. This indicates that the crypto community is closely watching the developments related to Lido’s strategic shift.