A Valuation Model for Lido DAO

Key Insights

• Lido is the leading liquid staking provider positioned well to benefit from Ethereum’s upcoming Merge.
• Since the protocol charges a fee on the staking yield, holding LDO is akin to holding a portion of the staked assets, and it can be valued as such.
• Based on our assumptions and the current market price of staked assets, LDO’s fair value is $7–7.5, with a potential upside of 130–150% from its current market price.

Lido is a liquid staking platform on Ethereum and other smart contract platforms. Users can deposit their staking asset into the Lido smart contract and receive an IOU derivative known as a Lido-staked asset (stAsset). The liquid staking derivative can be exchanged 1:1 with the protocol for the underlying staked asset subject to the network's withdrawal period, or it can be sold in the open market, where it usually trades at the same price as the base asset. Through this, users can earn staking yields without the significant investment of running a node or sacrificing liquidity to protocol-enforced lock-ups.

Lido deducts a portion of staking yield (typically 10%) as a fee before passing the rest on to stAsset holders. The protocol fee is split (typically 50/50) between supported validators and the Lido treasury. Lido’s fee model makes it possible to apply a valuation model to estimate the fundamental value of the LDO token.

LDO Token