What is this about?

The ongoing discussion pertains to the dual governance (DG) system proposed for the Lido protocol, which is currently governed by the Lido DAO through LDO token voting. The dual governance model aims to address the principal-agent problem (PAP) by aligning the interests of LDO holders and protocol users. The model proposes mechanisms such as allowing stakers to signal disagreement with the DAO, providing a negotiation device, introducing an extended dynamic timelock on DAO decisions, and improving foot voting efficiency. The community is exploring the practicality and implications of these mechanisms, as well as the potential roles of node operators and the value of LDO tokens in governance. The conversation also touches on the introduction of a Citizens’ Assembly model, a proxy for active users, and the balance between governance safety and efficiency.

How is the community reacting?

The community is actively participating in the discussion, with members expressing a range of opinions on the dual governance model. There is support for the initiative to mitigate governance risks, but also concerns about the practicality of certain mechanisms like the VetoSignaling Escrow and its tax implications, the VetoFirstSealThreshold, and the risk of a "bank run" on stETH. The debate extends to the future role of LDO tokens and the inclusion of node operators in the governance process. Suggestions include incentivized delegation and a prediction market to balance governance safety and efficiency. Sacha¹⁹ has contributed to the discussion by proposing the use of pending withdrawal NFTs in the veto signaling escrow and critiquing the effectiveness of foot voting mechanics. They also express skepticism about the global applicability of a rage quit phase and the idea of penalizing LDO holders who vote for malicious proposals, highlighting the potential risks of the veto committee's power.

Why this is positive?

• The dual governance model could enhance the protocol's safety and appeal, potentially increasing the value of LDO.
• It offers a structured way for stakers to oppose decisions that may harm the protocol, reducing the risk of a "bank run" on stETH.
• The model introduces measures to prevent hasty exits and discourage reactionary behavior following unfavorable DAO decisions.
• It facilitates a negotiation process between the DAO and stakers, aiming to resolve conflicts amicably.
• The emphasis on user experience and the development of a user-friendly UI for veto participation are seen as positive steps.

Why this is negative?

• Practical concerns exist regarding the VetoSignaling Escrow and its tax implications for stETH holders.
• The VetoFirstSealThreshold could trigger a "bank run" as stETH holders transfer to the escrow.
• There is a risk of a free Denial of Service (DoS) attack on the DAO.
• The VetoSignallingMinDuration may need fine-tuning to avoid significant governance delays.
• The balance of power is a concern, with the potential for disproportionate influence by agents holding stETH on behalf of others.
• The veto committee's power to cancel DAO decisions and exclude voters could be problematic, even in the absence of malicious intent.

Next actions

• The community will continue to refine the dual governance mechanism, prototype the code, and solicit feedback.
• Ongoing research and discussion are required on the governance roles of node operators, the function of LDO tokens, and the implementation of incentivized delegation and prediction markets.
• A decision on the initial version of the DG mechanism is anticipated within a month, with the understanding that it will be subject to future improvements.