Lido has emerged as one of the most popular solutions for Ethereum staking, especially for users who want to earn rewards without sacrificing liquidity. This guide breaks down everything you need to know about Lido staking—from how it works and its benefits, to potential risks and tax implications—so you can make an informed decision.
Whether you're new to crypto or expanding your DeFi strategy, understanding liquid staking, stETH, and how Lido fits into the broader Ethereum ecosystem is essential.
What Is Lido?
Launched in 2020, Lido is a decentralized liquid staking protocol designed for proof-of-stake (PoS) blockchains. It currently supports Ethereum, allowing users to stake ETH and receive stETH (staked ETH) in return.
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What Is Liquid Staking?
Traditional staking locks up your assets—you can’t trade or use them until you unstake, which may take days or even weeks. Liquid staking changes that.
When you stake ETH through Lido, you receive stETH, a token that represents your staked ETH plus accumulated rewards. Unlike locked staking, stETH can be freely traded, transferred, or used across DeFi platforms—giving you full flexibility while still earning staking yields.
This innovation makes Lido ideal for users who want passive income without being sidelined from active trading or yield farming opportunities.
Supported Cryptocurrencies
As of now, Lido only supports Ethereum (ETH). While it previously offered staking for other chains like Solana, those services have been discontinued. The focus remains firmly on enhancing Ethereum’s staking experience through decentralization and accessibility.
Governance: The Lido DAO
Lido is fully decentralized and governed by the Lido DAO (Decentralized Autonomous Organization). Holders of the native LDO token vote on key protocol decisions, including fee structures, validator selection, and upgrades.
This community-driven model ensures transparency and long-term sustainability, aligning incentives between developers, validators, and users.
How to Stake on Lido: Step by Step
Staking with Lido is simple and accessible to anyone with an Ethereum wallet. Here’s how to get started:
- Visit the official platform: Go to stake.lido.fi.
- Connect your wallet: Choose from compatible wallets like MetaMask, WalletConnect, or others.
- Review current APR: The dashboard shows the estimated annual percentage return on staking rewards.
- Enter amount: Input the amount of ETH you’d like to stake.
- Confirm transaction: Review gas fees and confirm the transaction via your wallet.
Once completed:
- You’ll receive stETH at a 1:1 ratio (initially).
- Your stETH balance will gradually increase as staking rewards accrue.
- You begin earning passive income immediately.
No minimum stake is required—unlike traditional node operators that demand 32 ETH—making Lido accessible to retail investors.
Lido Staking vs. Traditional Staking
Here's a clear breakdown of how Lido improves upon conventional Ethereum staking:
Liquidity
- Lido: Receive stETH instantly—usable in DeFi protocols like Aave or Uniswap.
- Traditional: ETH is locked until withdrawal queues allow access.
Minimum Requirement
- Lido: No minimum; stake any amount.
- Traditional: Requires 32 ETH to run a validator node.
Risk Distribution
- Lido: Staked ETH is spread across multiple professional validators selected by the DAO.
- Traditional: Relies on a single node operator—failure risks are higher.
Decentralization & Control
- Lido: Governed by the LDO community; transparent decision-making.
- Traditional: Often centralized when using custodial services like exchanges.
👉 Learn how decentralized staking platforms empower users with control and flexibility.
How Does Lido Work Under the Hood?
Lido operates through a suite of smart contracts that automate and secure every aspect of staking:
Deposit & Withdrawal Management
All user deposits and withdrawals are handled on-chain via smart contracts—no intermediaries involved. This ensures transparency and eliminates counterparty risk.
Validator Delegation
Staked ETH is distributed among a vetted set of node operators chosen by the Lido DAO. These validators participate in Ethereum’s consensus mechanism, proposing blocks and earning rewards.
stETH Minting & Burning
- When you deposit ETH, new stETH tokens are minted.
- When ETH is withdrawn (after unstaking), equivalent stETH is burned.
This maintains parity between total staked ETH and circulating stETH supply over time.
Fee Structure
Lido charges a 10% fee on staking rewards, split between:
- Node operators (compensation for running infrastructure)
- The Lido DAO treasury (funding development and governance)
Fees are automatically deducted and distributed by smart contracts—ensuring fairness and auditability.
Benefits of Using Lido
Why has Lido become such a dominant player in the staking space?
1. Maintain Liquidity While Earning Rewards
With stETH, your capital isn’t idle. You can:
- Trade it on decentralized exchanges
- Use it as collateral for loans
- Provide liquidity in yield farms
This unlocks advanced strategies not possible with locked staking.
2. No Technical Setup Required
You don’t need expensive hardware or deep technical knowledge. Lido handles node operations so you don’t have to.
3. Participate in Governance
Holding LDO gives you voting rights on protocol upgrades, partnerships, and fee models—putting power directly in users’ hands.
4. Market Adoption & Trust
Lido controls over 27% of all staked ETH, making it one of the most trusted liquid staking providers in DeFi.
Risks of Staking With Lido
While Lido offers many advantages, it’s important to understand the risks:
Smart Contract Vulnerabilities
Although Lido’s code is open-source and regularly audited, bugs could still exist. A successful exploit could impact user funds.
Withdrawal Delays
Unstaking typically takes 1–5 days, depending on Ethereum network conditions. During periods of high congestion or under “bunker mode,” delays may extend further.
Price Volatility of stETH
Due to withdrawal limitations, stETH can trade at a discount to ETH. For example, during market stress (like the 2022 Terra collapse), stETH briefly dropped below $0.90 per ETH equivalent.
Always monitor the stETH/ETH ratio before trading or using it in DeFi.
Centralization Concerns
Despite being DAO-governed, some critics argue that a small number of node operators control much of the network—raising potential centralization risks.
Is Staking on Lido Taxable?
Yes—swapping ETH for stETH (and vice versa) is generally considered a taxable event in jurisdictions like the U.S.
Each swap counts as a crypto-to-crypto transaction, potentially triggering capital gains or losses based on price changes since acquisition.
For example:
- If you stake 1 ETH valued at $3,000 and later redeem stETH when ETH is worth $3,500, you may owe tax on the $500 gain.
- Similarly, losses can be used to offset other taxable gains.
Tracking these events manually is complex due to frequent reward accruals and price fluctuations.
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Frequently Asked Questions
Q: How much does Lido charge for staking?
A: Lido charges a 10% fee on staking rewards, which is automatically deducted and distributed to node operators and the DAO treasury.
Q: What is the difference between Lido and Lido DAO?
A: Lido is the liquid staking protocol; Lido DAO is the decentralized governance body made up of LDO token holders who vote on protocol decisions.
Q: When can I unstake my ETH from Lido?
A: You can initiate unstaking at any time, but it usually takes 1–5 days to receive your ETH due to Ethereum network processing times.
Q: Can I lose money staking with Lido?
A: Yes—risks include smart contract bugs, validator failures, market volatility, and potential depegging of stETH from ETH.
Q: Is stETH the same as ETH?
A: No. stETH represents your share of staked ETH plus rewards but isn’t identical to native ETH—it may trade at a premium or discount and has different liquidity characteristics.
Q: Do I need 32 ETH to stake with Lido?
A: No. Unlike running your own validator, Lido allows fractional staking with no minimum requirement.
By combining ease of use, liquidity, and strong community governance, Lido offers a compelling alternative to traditional Ethereum staking. Whether you're looking to earn yield or integrate staked assets into DeFi, Lido provides a flexible foundation for modern crypto investing.