What You Need to Know About Mantle x Lido
GM, this is your Daily Bolt briefing
Market sentiment has been hectic, and prices are reflecting it. There’s currently a lot of chaos circulating around Curve and rumors around the BALD rugpull on Coinbase’s recently launched L2… Amidst this mess, it’s easy to forget about the real narratives still taking place.
In today’s edition, we’re giving you a full notes report from the discussion between Lido and Mantle. The parties discussed Lido’s recent proposal, which suggested Mantle stake 40,000 ETH from their treasury for stETH, with some unique revenue share mechanics at play.
Also; tune in today at 11AM EST for our 3rd live episode of Metrics Matter, featuring Souvlaki and Nick Drakon. On today’s agenda; stablecoins. With USDC and USDT half-year reports recently released, as well as Liquity’s LUSD risk report, there’s plenty to talk about.
Stay sharp in the markets ⬇
1/ Lido Twitter Space - Mantle x Lido DAO Proposal
Preview: Seraphim, Hasu, and Jordi discuss the recent Mantle x Lido DAO proposal, benefits for Mantle's L2 ecosystem, and more! Click here to listen to the full episode (49 mins).
Read our Note (7 mins) and save 42 mins.
$stETH Integration Proposal: Revenue Share and Risk Assessment
Seraphim says that his main task at Lido involves implementing 'stETH' into various DeFi protocols. His proposal revolves around allocating some of Mantle‘s treasury into '$stETH' to support the Mantle ecosystem and give back some of the revenue from the staking yield, beneficial for both DAOs.
Hasu says the proposal presents a big opportunity for DAOs with a lot of ETH. Staking this $ETH can provide low-risk revenue and support Ethereum's decentralization.
Jordi highlights the diversity of responses to the proposal and the importance of public discussions to facilitate understanding and he outlines key discussion points such as smart contract risk, centralization risk, and diversification in treasury management.
Seraphim explains the revenue share details, stating that the initial proposal is for a 30% share but it could go up to 50% depending on the amount staked. He mentions that there is potential for negotiation given Mantle's significant presence in the space.
Jordi says that the revenue share proposal is negotiable and could be debated and decided upon by each DAO involved. He highlights the importance of evaluating risk, especially smart contract risk, and asks about Lido's comparison to other platforms such as Rocket Pool.
Hasu mentions that he advises more on strategic matters rather than smart contract security but shares his perspective as a user. He says that he would opt for the largest and oldest provider, which in this case is Lido, due to its track record and security-conscious culture.
Hasu says that Lido has the deepest liquidity of all the liquid staking protocols. He mentions that liquidity is crucial for large-scale exits from the protocol and that Lido is the only staking protocol with proper withdrawals enabled.
Jordi asks about Lido's perspective and roadmap regarding centralization threats to the network, posing a hypothetical comparison between a network that has decentralization happening on the LST layer with multiple wrappers, and a network with only one wrapper.
Hasu says that the fragmentation of $ETH into multiple tools isn't desirable. Users are more incentivized to be a part of a large group of other holders, highlighting the need for deep integrations and liquidity.
He says that although the network would benefit from broad participation and a lack of outsized market power for any single entity, markets don't always work this way in practice. Some markets tend to be more concentrated due to the nature of their economics, with the staking market being one such example.
Hasu explains that most stakeholders will delegate their staking due to the natural division of labor between capital and labor.
He says that staking markets have a strong network effect and will likely become highly concentrated. People generally want to stake with the biggest, most trusted, and most useful provider, hence it is crucial that the leading provider is as decentralized and aligned with Ethereum as possible.
Hasu's vision for Lido involves a trustless, thin middleware that tokenizes stake and delegates it across different node operators in a permissionless manner, aiming for a broad distribution of stake that's good for Ethereum.
Jordi asks about a proposal that would allow $stETH to veto Lido DAO proposals they deem unreasonable. Hasu says that this is to prevent potential governance attacks or misalignment, by giving stakers a voice in the protocol.
Hasu says that the slashing risk, where validators are punished for not behaving correctly, is designed to be forgiving in Ethereum's consensus protocol. Validators will only face a substantial punishment if they are caught proposing multiple blocks at the same time, a behavior associated with reorg attacks.
He explains that Lido distributes stakes across many different node operators, who in turn spread their stakes over many independent machines, hence the risk of a massive simultaneous error leading to significant slashing is low.
Hasu recognizes that while no service can be completely risk-free, staking on Ethereum through setups like Lido can be considered relatively low-risk due to its design and professional management.
Mantle's L2 LST Ecosystem: Trends & Strategies
Jordi discusses the proposal part of the primary objective which focuses on bootstrapping a vibrant and sustainable LST ecosystem on Mantle L2. He says this strategy associates Layer-2 in Mantle as a DeFi ecosystem, positioning itself as very liquid with a high TVL and innovative ecosystem for DeFi.
Seraphim says that most of the $stETH or wrapped $stETH ($wstETH) stays on the mainnet but the total number of $stETH across Layer-2 is increasing rapidly as people are becoming more comfortable with moving $stETH from the Ethereum mainnet. He predicts an acceleration of this trend.
He says that the LST narrative is gaining ground with other ecosystems trying to tap into it.
Seraphim also says that Mantle has the unique advantage of a large treasury which can be used to bootstrap the ecosystem and the partnership with Bybit allows traders to move their funds from Bybit to Mantle, offering an existing user base for builders in the space.
Jordi addresses a recurring comment about Mantle staking the $ETH itself and explains that creating a Mantle LST and putting a large amount of treasury into that is the plan, but it takes time for a secure setup.
He highlights the importance of diversification and considers the suggested 40,000 $ETH from the BitDAO treasury to the $stETH proposal from Lido as a wise step toward establishing an L2 LST ecosystem. He evaluates other proposals from different LSTs and says that beginning with Lido at present is a reasonable decision.
Hasu says that $stETH is likely to be the fastest-growing in-demand token because it earns yield while held in wallets, can be used for trading and collateral, and will soon allow transaction fees to be paid in any token. He mentions the demand for services tailored to $stETH and supports the strategy of centering around $stETH.
Jordi discusses the concept of rebasing and non-rebasing versions of tokens, including the challenges and benefits related to DeFi integrations depending on whether a token is an ERC-20 or not.
Seraphim explains there are two versions of Lido's $stETH, the initial ($stETH) and the wrapped one ($wstETH). He mentions the wrapped version has a slightly different pricing mechanism that increases its exchange rate by a certain percentage over a year. This version is easier for DeFi protocols to handle, becoming the dominant version in the LST space. Seraphim recognizes the potential integration of $stETH as an asset in the future.
Jordi agrees that both versions of $stETH have their pros and cons and it's up to different dapps to decide which one is more suitable.
Hasu says that many users prefer the user experience of the unwrapped version because they enjoy seeing their wallet balance increase, a feature that the wrapped version doesn't provide.
Seraphim says that centralized exchanges seem to prefer $stETH, likely due to easier accounting and the user base, though it's unclear which version will be predominant in three years.
Jordi asks about the current ratio of wrapped to unwrapped ETH in circulation. Seraphim says that the state of wrapped $ETH might be more prevalent because of its integration on Curve Finance.
Seraphim says that if Mantle decides to propose a revenue share, Lido will follow a process that involves the assistance of a contributor named Front Alpha. The proposal will be put to a vote after going through this process.
Jordi mentions an ongoing discussion about creating a committee on the Mantle side to handle the distribution of Mantle's treasury $ETH to a limited number of use cases such as Lido.