LDO is the token name for the Lido DAO. "Lido" is the name of the service platform, and "DAO" stands for Decentralized Autonomous Organization. Therefore, the purpose of the LDO token is for governance, allowing holders to participate in voting on the Lido platform. The staking service provided by Lido makes it simple for users to earn staking rewards from Proof of Stake (PoS) blockchains.
What services does the Lido platform offer?
An increasing number of blockchains are now using the Proof of Stake (PoS) consensus mechanism. This contrasts with Proof of Work (PoW), led by Bitcoin, where miners compete for block validation rights using computing power. In PoS, validators are chosen based on the amount of tokens they hold (or "stake").
To qualify as a validator, participants must "stake" (lock up) their tokens on the blockchain. To incentivize more token staking and thus enhance network security, PoS ecosystems are typically designed so that the more tokens one stakes, the higher their chance of being selected as a validator. Validators are then rewarded, often with transaction fees.
Because of this reward mechanism, staking is expected to be a profitable activity. However, despite the incentive, staking still has barriers to entry, such as minimum token requirements and technical setup. This led to the creation of services that stake on behalf of users, and the Lido platform is one such service.
Features of the Lido Platform
1. Support for multiple blockchains. The PoS reward mechanism encourages staking tokens to become a validator. This often means users must go to different platforms and use different interfaces to earn rewards from different blockchains. The Lido platform, however, integrates services for multiple chains on one website. Currently, Lido supports Ethereum, Solana, Polygon, Polkadot, and Kusama.
2. Earning composite rewards. In a standard PoS mechanism, when you stake tokens, those tokens are locked and cannot be used elsewhere. Lido, however, provides a liquid staking solution. When you stake on Lido, you receive stTokens (e.g., stETH) in return. Users can then use these stTokens in other services (like DeFi protocols) to earn additional rewards on top of their original staking yield.
What is the function of the LDO token?
The Lido platform is governed as a DAO. Simply put, holding LDO tokens allows you to become a member of this organization. As a member, you can discuss issues, submit proposals, and vote on their adoption. Voting power is calculated based on the amount of LDO held—the more LDO you hold, the greater your influence in passing proposals you support.
(The image below is a partial screenshot of a Lido DAO vote, showing in the bottom right that the vote count for "Support" or "Oppose" is calculated in LDO.)
References
Lido Official Website: https://lido.fi/
CoinMarketCap Profile: https://coinmarketcap.com/currencies/lido-dao/