Lido DAO proposes to spend up to 10,000 stETH to purchase its own governance token at what it calls a historically depressed valuation. At current Ethereum prices of nearly $2,000, this figure is approximately $20 million.
The question is where to spend it.
According to the proposal released by the Lido ecosystem operations team over the weekend, the depth of LDO liquidity on the chain is approximately $90,000, plus or minus 2%. The market depth measure means that a trade of that value could move the token's price by as much as 2%.
A single 1,000 stETH batch executed on-chain will deplete available liquidity multiple times, meaning Ethereum’s largest liquidity staking protocols must buy their own tokens off-chain at scale.
The proposal authorizes the Lido Growth Committee to trade through centralized exchanges such as Binance, OKX, Bybit, Gate, and Bitget, each of which currently has over $100,000 in deep trading. It also allows the committee to engage market making partners on behalf of the Lido Ecosystem Foundation to facilitate execution.
Pay attention to governance
According to CoinGecko data, LDO hit an all-time low of $0.27 on March 7 and is currently trading at nearly $0.30, with a market capitalization of approximately $258 million.
The coin is down more than 95% from its 2021 peak of $7.30. At current prices, the proposed buyback could consume approximately 65 million tokens, or around 8% of the circulating supply.
The case for DAO hinges on the gap between the token’s performance and the foundation of the protocol. The LDO to ETH ratio is around 0.00016, down 70% from where it has been for much of the past two years.
In comparison, net protocol rewards only dropped by about 20% during the same period, while costs increased by 13% year-on-year, and the effective adoption rate of the protocol increased from 5% to 6.11%. According to DefiLlama, Lido still holds the largest share of staked ether at around 23%.
“This is not a routine fluctuation,” the proposal states. “It represents one of the most significant dislocations in the history of the token between the LDO market price and the fundamentals of its underlying protocol.”
Execution will occur in batches of 1,000 stETH, with each batch requiring a separate Easy Track motion — a governance mechanism for routine or approval operations — and a three-day objection period. The Growth Committee retains discretion over timing and pacing to avoid signaling exact action to the market, a necessary precaution given that the proposal is public. Slippage shall not exceed 3% of the reference price.
The deeper issue raised by the proposal is one widely faced by DeFi governance tokens. LDO's 95% drop from peak is extreme, but it's not an outlier in the category. A protocol that dominates the space, generates stable fees, and holds billions in TVL is currently trading at a market cap of $258 million, as the market has broadly repriced the value of its governance tokens when it controls fee conversions but does not make any distributions.
The bullish answer is to view this dislocation as a buying opportunity. Whether this works depends on whether the market deems the governance token worth trading based on fundamentals.
