Lido Says Institutional Staking Drew $25 Billion This Year, Speeding Ethereum’s Shift Into Financial Infrastructure [Cointerview]

Will Shannon, Head of Staking at Lido Labs

'Year of Institutional Staking' as Inflows This Year Are Estimated at $25 Billion

More Than 600 Node Operators ↑... CSM, Dual Governance Bolster Decentralization

Expects Crypto Adoption by South Korea’s Financial Sector, Signals New Product Launches

"Ethereum is set to become the core foundation for financial services such as asset tokenization, payments and settlement. Its potential use is showing up most clearly in finance. It is also important to preserve neutrality and decentralization so anyone can access it freely. Lido aims to strengthen Ethereum’s stability and censorship resistance by distributing staked assets across a broad set of validators, helping Ethereum grow into financial infrastructure."

Will Shannon, head of staking at Lido Labs, made the remarks in an interview with Bloomingbit on Oct. 28. Lido is currently the world’s largest liquid staking protocol, accounting for about 22% of all Ether staked on Ethereum.

Capturing Staking Rewards and Liquidity at the Same Time

Lido was built as a liquid staking protocol with the goal of making staking easier, safer and accessible to anyone. Traditionally, participating directly as a validator required at least 32 Ether, worth about $79,000, and staked assets were difficult to deploy elsewhere.

Lido addressed that by allowing users to stake smaller amounts and issuing stETH in return for deposited Ether. StETH acts as a type of receipt token. Users who deposit 1 Ether receive 1 stETH while continuing to accrue staking rewards.

For example, users can post stETH as collateral on the DeFi lending platform Aave. They can also exchange stETH relatively quickly into Ether or dollar-backed stablecoins such as Circle's USDC and Tether's USDT, without waiting to unstake and withdraw. The key is that users can earn staking rewards while putting their assets to other uses. That flexibility is one of the main reasons for Lido’s broad adoption.

Decision-Making Through a Decentralized Organization

Another feature is that even though a significant amount of Ether is staked through Lido, the protocol’s key operating decisions are set by a decentralized autonomous organization rather than a single company. In a DAO, governance participants make major decisions collectively. In the Lido DAO, holders of the governance token LDO directly determine major operating directions.

That reflects the blockchain industry’s emphasis on decentralization. The principle is not only about reducing reliance on intermediaries. It is also about preventing power from becoming concentrated in a few hands. Unlike Bitcoin, Ethereum runs on proof-of-stake rather than mining. Validators that stake Ether verify transactions, add new blocks and maintain the network.

Because of that structure, concentration of validation power in a small group could affect the broader network through outages or transaction censorship. A diverse and distributed validator base, by contrast, helps preserve network stability and neutrality even if some participants run into problems.

Whether someone lives in South Korea, the US or France, they should be able to access the network without being controlled and send assets or process transactions normally, Shannon said. Broad validator participation in a distributed structure plays an important role in strengthening Ethereum’s censorship resistance and resilience. That is also why Lido places importance on both geographic dispersion and diversity of backgrounds among validators.

CSM and Dual Governance Bolster Decentralization

Shannon cited two of Lido’s most important changes in recent years: the introduction of the Community Staking Module, or CSM, and the buildout of dual governance.

CSM allows individuals to run Ethereum validators directly without separate approval. That has expanded the structure from one centered on 34 professional operators to one involving more than 600 operators. Unlike exchange staking, where users deposit assets and simply receive rewards, the model allows individuals to contribute directly to Ethereum’s decentralization.

Lido recently launched 0x02 CSM after receiving DAO approval. The feature supports up to 2,048 Ether per validator. The idea is to consolidate validators that previously operated in units of 32 Ether into larger groupings, reducing the communication burden on the Ethereum network and improving validator efficiency. It is currently in an early rollout phase, with access being expanded gradually.

More recently, Lido introduced dual governance to prevent conflicts of interest that can arise in decision-making. In DeFi protocols governed by votes from native-token holders, the people making decisions may differ from the users who actually deposited assets. A decision that benefits one side can work against the other. Dual governance was designed as a check on those conflicts.

For example, if LDO holders try to make an improper change to a smart contract that affects withdrawals of staked assets, stETH holders who deposited the assets can coordinate opposition and delay execution of that decision. The mechanism is designed to give users time to withdraw their funds if needed. In effect, it brings checks and balances between operators and users into on-chain governance.

Dual governance was designed over several years and reflects traditional corporate governance, game theory and broad discussions across the global community, Shannon said. Through that system, Lido is addressing conflicts of interest through a decentralized automated framework.

$25 Billion of Institutional Money Has Entered This Year

Growing institutional participation in staking is also reshaping the market, Shannon said.

"This year is the year of institutional staking," he said. "About $25 billion of institutional money has flowed into the staking market so far this year, helped by regulatory changes in the US. We estimate that about 55% of that came from BitMine."

BitMine is the world’s largest corporate Ethereum treasury holder and owns about 5% of Ether’s circulating supply.

About 80% of institutional staking flows are estimated to come through institutions that require US custodians or custody services. Those custodians, however, tend to delegate staking to a relatively small number of node operators.

Shannon said diversification of capital remains important even as institutional staking expands. If institutional money becomes concentrated with a small number of node operators, that could become a risk factor for Ethereum. By using distributed node-operator networks such as Lido or Rocket Pool, institutions can spread operational risk tied to staking while also helping strengthen the stability of the Ethereum network. The approach lowers dependence on any single operator by distributing large Ether holdings across multiple validators and node operators.

Lido’s decentralized staking structure is also emerging as an attractive option for institutions, helping drive additional inflows. Shannon said SharpLink recently allocated $200 million to wstETH. In Europe, an exchange-traded product linked to Lido by WisdomTree is also growing quickly. He added that he expects more notable developments in Lido’s institutional business over the next few months.

Expects Crypto Adoption in South Korea’s Financial Sector

On South Korea, Shannon offered a positive assessment of moves by domestic financial institutions to adopt digital assets, while saying regulatory constraints remain in place. He also signaled plans for new product launches.

"South Korea does not yet have a clear timeline for allowing financial institutions to formally hold spot digital assets, and there may also be restrictions on partnerships with companies that hold crypto," he said. "Those regulations could also become an obstacle to the introduction of spot Bitcoin and Ether exchange-traded funds."

He said he hopes future regulatory improvements will allow South Korean investors to access stETH through traditional financial markets.

Shannon also referred to Lido’s expansion plans, including the decentralized lending protocol Lido Lend, which is set for an official launch soon.

"Lido is no longer a protocol that only offers liquid staking," he said. "Within the next two months, we expect to announce several new products that will surprise the market."