Why Lido's Market Share Is Falling Despite Rising Institutional Ethereum Staking

Author: Liam Akiba-Wright, cryptoslate

Compiled by: Luffy, Foresight News

Liquid staking protocol Lido captured only 5.7% of net new Ethereum staking in the first half of 2026. For LDO token holders, the protocol's operational challenge is how to generate DAO revenue in a growing market to support automated buybacks.

Lido's automated buyback mechanism NEST vividly illustrates this contradiction (Note: NEST stands for Network Economic Support Tokenomics, an on-chain automated LDO buyback mechanism of Lido DAO that uses protocol staking surplus revenue to buy back LDO through fixed, non-interventionist on-chain rules). On September 9, the contract responsible for releasing buyback funds triggered a check, but no fund allocation was executed this time. The NEST budget was negative, indicating a shortfall in the amount available for buybacks. Although funds were ready, according to the rules, more surplus must be accumulated before buyback operations can resume.

Institutional capital flows are one reason for this operational difficulty. Lido's H1 report shows that funds have poured into areas not covered by Lido; current products for institutional clients also have fee waivers, prioritizing market adoption over short-term revenue. The USD price of ETH and the rewards generated per staked ETH also affect final earnings.

Market Size Keeps Growing, But Share Is Shrinking

Lido's H1 report shows that as of June 30, total Ethereum staking reached 43.1 million ETH, up from 36.3 million ETH at the start of the year. Lido added 386,000 ETH in new staking in H1, with total staked amount rising from about 8.74 million ETH at the beginning of the year to 9.13 million ETH.

Total network staking increased by 6.8 million ETH in H1, with Lido accounting for only 5.7% of the new amount. Its statistical market share fell from 23.93% to 21.18%. These are historical statistics, including ETH queued for activation and excluding ETH in the exit queue. The data reflects the cutoff of June 30; even though Lido's net staking growth was positive in H1, some months saw outflows, and overall market share was still diluted.

Lido believes the dilution largely stems from institutional funds choosing other staking service providers. Its market breakdown data shows that institutional funds' share of the Ethereum staking market rose from 25.9% to 35.3% in H1.

Data from the same report shows that as of June 30, Bitmine accounted for 11.5%, Coinbase 10.9%, and Binance 7.9%. These labels represent different entities in the staking chain. The report separately lists Grayscale at 3.1%, noted as "operating through Coinbase"; simply adding these entities would cause double-counting errors.

The economic logic behind the rankings is simpler. Institutions can choose other providers to earn Ethereum staking rewards without generating protocol fees for Lido. Overall staking market growth benefits other staking sectors while diluting Lido's total share.

Of course, some institutions choose Lido. On August 13, Sharplink selected Lido to handle a $200 million ETH staking allocation, with the corresponding wstETH to be custodied by Anchorage Digital. This allocation case demonstrates a cooperation model between institutional custody and Lido's staking business.

Choosing different products directly determines which fee income the DAO can receive. Lido also launched stVault staking vaults with independent fee rules. Lido's announcement states: Node operators operating stVaults with total locked value exceeding 250 ETH will have the Lido infrastructure fee waived for eligible stVaults until October 31.

This waiver applies only to infrastructure fees for eligible vaults; other fees and Lido's other products remain under original terms. Growth in eligible vault balances can boost product adoption, but the waived portion does not generate revenue for the protocol.

Lido's H1 report shows that the DAO's actual share of staking rewards rose to 6.15%, up from 4.96% last December, while the total protocol fee rate remained at 10%. The revenue split between the DAO and node operators is as critical as the headline total fee rate. The actual share in the report is the profitability level at the end of H1; current products still have their own independent fee rates.

A simple sensitivity calculation: Assume 100,000 new ETH enters staking, with an annualized reward of 2.59%, and the DAO receives 6.15% of rewards. At an ETH price of $2,500, this staking would generate about 159 ETH per year for the DAO, equivalent to $398,000 in staking revenue.

This calculation assumes all conditions are fixed. Actual revenue depends on active staking volume, reward rate, ETH USD price, and fee terms that determine DAO retained earnings. Acquiring deposits and earning revenue from deposits are two separate business segments.

Staking activation queue costs also affect product choice. Node queue data on September 9 showed 1,931,206 ETH waiting for activation, with an estimated wait time of 33 days 13 hours; total staked ETH was 43 million, with an annualized staking reward rate of 2.59%.

A new deposit at the back of the queue, under the assumption of a fixed 2.59% annualized rate and waiting period, would lose about 0.24% of principal in potential reward earnings before fees and compounding. This figure is only an estimated delayed reward loss under assumed conditions; actual rewards and wait times will vary.

Existing liquid staking positions can immediately earn staking rewards (subject to custody, platform terms, price, and liquidity constraints). This changes investor experience, but underlying validator nodes still must go through the Ethereum activation queue.

Existing validators have another option. Lido's blog introduces a validator migration plan: most of the original staked funds can continue earning rewards, and the target node enters stVault before waiting for activation. There is still a time gap between initial deposit and subsequent fund transfers.

Therefore, new deposits, existing liquid staking positions, and migrating validators all face different queue-related costs. For Lido, the core business question is: Can liquidity and node migration solutions attract funds and ultimately generate revenue for the DAO?

How DAO Revenue Converts into Buyback Capacity

The complete chain of LDO token buybacks is: staked assets generate fees → form DAO revenue → calculate surplus according to the NEST reserve formula. Only when funds are in place and execution conditions are met will market buys occur. The unaudited H1 financial report shows that after paying rewards to stETH holders, Lido's staking business gross revenue was $27.51 million; after deducting various expenses, staking net revenue was $15.71 million. Adding the Earn business, total DAO net revenue was $15.94 million.

The report attributes the decline in USD revenue mainly to lower ETH prices. The staking business itself still generated $6.73 million in product-level profit. At the DAO and foundation level, foundation expenses were $14.33 million, operating surplus was $1.61 million; plus a one-time loss of $6.06 million related to the Kelp project, the final overall net loss was $4.45 million.

Clarifying these income and expense items means one cannot simply attribute the entire market share decline to financial pressure.

Recent DeFiLlama protocol fee panel data shows: Lido's 24-hour revenue was $101,935, 7-day $696,955, and 30-day $2.71 million. Panel data can serve as a revenue reference, but NEST relies on its own on-chain revenue accounting system to determine whether buyback conditions are met.

According to LIP-36 proposal rules, NEST deducts a daily reserve of $109,589 from statistical revenue (equivalent to about $40 million per year), and 50% of the surplus is added to the cumulative budget. Once the budget is negative, surplus must be re-accumulated before spending can resume.

The initial ETH price floor is set at 0. The H1 report's estimated break-even ETH price of about $2,730 is determined by staking scale, reward rate, and DAO share, describing a daily revenue balance state; the contract also continues to carry forward historical deficits. ETH price increases alone are insufficient to erase accumulated accounting deficits.

NEST also requires funds to be in place and operational qualifications to be met. The daily buyback cap is $50,000, with a total cap of $10 million over a continuous 365-day period. These are only maximum allowable amounts; actual spending is still constrained by budget and various qualification conditions.

On-chain data from September 9 shows the fund allocation contract address records: On August 28, only one transfer of 41 stETH was made in as a fund reserve, with no outgoing allocation records. Funds remain in the allocation contract, consistent with the September 9 checkpoint skipping the buyback operation.

Lido previously bought back a cumulative 10,025,866 LDO through another active buyback program, spending 1,591 stETH, with the second batch completed in July. This active buyback program is independent of the NEST automated buyback.

LDO obtained through the NEST mechanism buyback will be deposited into the DAO treasury, with tokens owned by the DAO. NEST neither burns tokens nor automatically distributes tokens to holders.

For LDO holders, the key metrics to watch are: staking scale that generates fees, the proportion of rewards the DAO can retain, and the cumulative budget available for buybacks. Only when institutional funds flow into Lido under a fee-paying model can institutional staking growth improve this profit model. The September 9 contract checkpoint shows that even as the overall Ethereum staking market continues to expand, an automated buyback mechanism with reserve funds may still lack available surplus.