Why Is Lido Moving to Buy Back Its Governance Token?
Lido DAO has proposed allocating up to 10,000 stETH, worth roughly $20 million, to repurchase its LDO governance token from the open market. The proposal is framed as a response to what the DAO describes as a historically depressed valuation, with LDO trading near $0.30 after a prolonged decline.
The token has fallen more than 95% from its 2021 peak of $7.30, leaving Lido with a market capitalization of about $258 million despite maintaining its position as the largest liquid staking protocol on Ethereum. At current prices, the buyback could retire around 65 million tokens, or approximately 8% of the circulating supply.
The rationale centers on a widening gap between token price and protocol performance. While LDO has seen a steep drawdown, Lido’s underlying metrics have remained relatively stable, with net protocol rewards declining by about 20% and costs improving 13% year-over-year.
How Does Liquidity Shape the Execution Strategy?
Execution is constrained by limited onchain liquidity. LDO currently has around $90,000 of depth within a 2% price range, meaning even modest-sized trades can move the market significantly. A single 1,000 stETH transaction would exceed available liquidity multiple times over.
To address this, the proposal outlines an offchain execution strategy. Trades will be routed through centralized exchanges including Binance, OKX, Bybit, Gate, and Bitget, as well as through market makers acting on behalf of the Lido Ecosystem Foundation.
Purchases will be executed in batches of 1,000 stETH, each requiring a separate governance approval under Lido’s Easy Track framework. A three-day objection period applies to each batch, while execution timing remains flexible to reduce market signaling. Slippage is capped at 3% below the reference price.
Investor Takeaway
Does LDO’s Price Reflect Lido’s Fundamentals?
The proposal argues that LDO’s valuation no longer reflects the protocol’s underlying performance. The LDO-to-ETH ratio has fallen to around 0.00016, representing a 70% discount to levels seen over most of the past two years.
At the same time, Lido continues to hold roughly 23% of all staked ether, maintaining its dominance in the liquid staking sector. The protocol’s effective take rate has increased to 6.11% from 5%, indicating improved monetization despite broader market pressures.
“This is not a routine fluctuation,” the proposal states. “It represents one of the most significant dislocations between LDO’s market price and its underlying protocol fundamentals in the token’s history.”
The DAO is effectively treating this divergence as a capital allocation opportunity, using treasury assets to reduce supply and potentially support price recovery.
Investor Takeaway
What Does This Say About Governance Token Valuation?
The proposal highlights a broader issue across DeFi. Governance tokens often control fee switches and protocol parameters but do not directly distribute revenue, limiting their appeal to investors focused on cash flows.
LDO’s drawdown is severe but not unique. Many governance tokens have seen similar repricing as market participants reassess their utility and economic rights. This has created a disconnect between protocol usage metrics, such as total value locked and fee generation, and token valuations.
Lido’s approach attempts to address this through supply reduction rather than structural changes to token economics. Whether this strategy proves effective depends on market willingness to reprice governance tokens based on fundamentals rather than speculative demand.
The proposal ultimately raises a structural question for the sector: whether governance tokens can sustain long-term valuations without clearer links to revenue distribution.
