FAQ About Lido Finance and Liquid Staking
What is Lido Finance?
Lido Finance is a liquid staking solution that allows users to stake Ethereum and other assets while maintaining liquidity. When you stake ETH through Lido, you receive stETH tokens that represent your staked ETH plus accumulated rewards, which can be used throughout the DeFi ecosystem.
How does Lido Finance make money?
Lido Finance charges a 10% fee on the staking rewards generated (not on the principal amount). This fee is used to maintain the protocol, compensate node operators, and fund the Lido DAO treasury for ongoing development.
Is Lido Finance safe to use?
Lido Finance has undergone multiple security audits and implements various safety measures. However, like all DeFi protocols, it carries inherent risks including smart contract vulnerabilities and validator slashing. Users should conduct their own research and only stake amounts they can afford to risk.
What exactly is stETH?
stETH (Lido Staked ETH) is an ERC-20 token that represents ETH staked through Lido Finance plus accumulated staking rewards. The token balance increases automatically to reflect earned rewards, eliminating the need for manual claiming.
Can stETH lose value compared to ETH?
While stETH aims to maintain close parity with ETH, market conditions can cause temporary price fluctuations. During periods of market stress, stETH has occasionally traded at a discount to ETH on secondary markets, though arbitrage mechanisms typically help restore the peg over time.
What's the difference between stETH and wstETH?
stETH is Lido's rebasing token that increases in quantity as rewards accrue. wstETH (wrapped stETH) is a non-rebasing version where the token value increases instead of the quantity, making it easier to integrate with certain DeFi protocols that don't support rebasing tokens.
What is the minimum amount required to stake with Lido?
There is no minimum requirement to stake ETH with Lido Finance. You can stake any amount of ETH, making it accessible to all types of investors regardless of portfolio size.
How are staking rewards distributed?
Staking rewards are automatically reflected in your stETH balance through daily rebasing. Your stETH amount increases proportionally to the rewards earned by Lido's validators, minus the 10% protocol fee.
Can I unstake my ETH at any time?
You have two main options to exit your position: trade your stETH for ETH on secondary markets like Curve or Uniswap, which is immediate but subject to market conditions, or use Lido's withdrawal function to convert stETH back to ETH, which is subject to Ethereum's withdrawal queue processing time.
What happens if validators get slashed?
Lido implements a socialized loss model that distributes any slashing penalties across all stETH holders, minimizing the impact on any individual. The protocol also employs strict validator selection criteria and monitoring to reduce slashing risks.
How does Lido select node operators?
Node operators are selected through a rigorous process managed by the Lido DAO, evaluating technical expertise, security practices, geographic distribution, and track record. The goal is to maintain a diverse and reliable validator set that minimizes operational risks.
Can stETH be used in smart contracts and DeFi protocols?
Yes, stETH functions as a standard ERC-20 token and is widely supported across the DeFi ecosystem. It can be used for lending, borrowing, liquidity provision, yield farming, and as collateral in various applications.