Lido’s Bold Move: Automated LDO Buyback Plan to Turbocharge Liquidity

Lido shakes up DeFi with a self-sustaining liquidity engine—just don't call it a Ponzi.

The Buyback Gambit

The staking giant proposes algorithmic LDO repurchases, creating a flywheel for its governance token. No more begging whales to prop up the market.

How It Works

Protocol revenue gets funneled into smart contracts that execute buys automatically. Think corporate stock buybacks—but with blockchain's trademark transparency.

Why TradFi Should Sweat

While Wall Street plays musical chairs with ETFs, DeFi protocols like Lido are building actual economic mechanisms. Too bad they still can't fix crypto's addiction to tokenomics gimmicks.

How would the buyback work

Lido wants to use something called NEST to do the buybacks. NEST lets trades happen directly on the blockchain, without needing a central exchange. To avoid suddenly pushing the price up or down, the DAO WOULD buy LDO in smaller amounts called “clips.” 

As per the proposal, the executions could occur 14 times a year in 350,000 LDO clips, and each trade would be designed so it doesn’t MOVE the price more than 2%, not counting the transaction fees.

The system tries to strike a balance. On one hand, there’s slippage, which is the difference between the price you expect and the price you actually get when you buy or sell. On the other hand, there are gas fees, which are the costs of making the transaction on Ethereum. 

Buying smaller amounts more often reduces slippage but costs more in gas fees. Bigger trades save on fees but can move the price more than the DAO wants.

LDO tokens are limited, so the DAO cannot buy large amounts all at once without affecting trading. To prevent disruptions on both decentralized exchanges and centralized exchanges, the buyback would only take place when certain conditions are met: Ethereum’s price must be above $3,000, and the DAO’s annual revenue must exceed $40 million.

Proposed parameters

The proposal sets out clear rules for how the buyback system would operate:

• Ethereum price threshold: Buybacks take place only if Ethereum trades above $3,000.
• Revenue threshold: The system activates only if annual revenue surpasses $40 million.
• Distribution rate: 50% of treasury inflows above $40 million would be used for buybacks.
• Market impact cap: Each trade would affect no more than 2% of LDO liquidity.
• Annual maximum: Total buybacks would be limited to $10 million over any rolling 12-month period.

The system is designed to be anti-cyclical. This means that buybacks would increase when ethereum prices and revenue are high, and reduce during market downturns to avoid removing too many tokens at once. 

According to current estimates, this could result in about $4 million in buybacks over a year, carried out over at least 12 trades, with up to 100 stETH used per trade.

Liquidity pool option

The proposal also suggests setting up a liquidity pool that combines LDO with wrapped stETH, or wstETH. A liquidity pool is essentially a shared pool of tokens, which makes it easier for traders to buy and sell without depending entirely on other participants in the market. 

Part of the LDO acquired through NEST would be paired with wstETH in a Uniswap v2-style pool. This would gradually increase the amount of LDO available for trading on the blockchain while still removing tokens from circulation.

The initial pool could start with roughly $400,000 from the DAO treasury, combining 50 stETH with 200,000 LDO. The DAO would earn a small fee for managing the pool. Over time, trades could happen more frequently, reducing the impact on prices and making LDO easier to use on-chain. The pool is intended to improve token utility and liquidity rather than generate profit.

How the process would work

The NEST contract would be loaded using EasyTrack, which can run trades automatically or manually.

Part of the DAO’s treasury would be used to buy LDO through Stonks v2, a trading platform. These LDO tokens would then be paired with wrapped stETH, or wstETH, to add liquidity to a pool.

The liquidity pool tokens would be returned to the Aragon Agent, a smart contract managed by the DAO. If more WSTETH is required, additional treasury funds could be added, and the process would repeat. The DAO would retain full ownership of the pool, making sure that token holders continue to have control.

The proposal is now open for discussion on the Lido DAO Forum. Members of the community can share their opinions on how the system works, the proposed rules, and any alternative ideas. After the discussion period ends, the proposal could go to a formal vote on Snapshot, the DAO’s voting platform.

Overall, this system provides the DAO with a straightforward and effective way to manage its treasury. By combining automated buybacks, liquidity pools, and rules that respond to market conditions, Lido seeks to maintain the stability of the LDO token, improve its use on the blockchain, and carefully control the total supply.

Also Read: Uniswap’s Fee Switch Proposal Sparks 48% UNI price Surge