INTRODUCTION

In December 2020, Lido launched as a liquid staking solution for Ethereum and other proof of stake chains. This allows users to stake their tokens without having to lock assets or maintain staking infrastructure. With the launch of Lido came the issuance of 1 billion LDO tokens, which were distributed among a variety of stakeholders, including Seed Investors, Team and Validators, and the DAO treasury.

This report provides a walkthrough of the LIDO Token Allocation Framework and highlights some of the key players involved in the distribution of the tokens. It also labels some of these investors’ wallets, so you can track on-chain what they have done with their allocation.

The report concludes that Lido is leading the way in achieving "moneyness" in the liquid staking space due to its strong connections within the Ethereum and DeFi community (as an example the stETH token received after depositing ETH on Lido is accepted as collateral in many of the top DeFi blue chips: Aave, Curve, Maker, Uniswap, unlocking capital efficiency).

1. LDO TGE DISTRIBUTION

On January 7, 2020 -3 weeks after issuing the tokens- LIDO published a blog post indicating how were the 1 billion LDO tokens allocated. A snapshot of the reported allocation is included below.

You can reorganize this into 3 categories (which I will be using throughout the report): Seed Investors, which were to receive 22.18%, Team and Validators, 41.5% and Treasury, 22.18%. But if you look at the on-chain allocation there is a discrepancy between the reported allocation in the blog post and the on-chain distribution:

On-chain distribution of the 1 billion minted LDO:

• Seed investors: They ended up receiving 236.4M, not 221.8M (+14.6)

• Team and Validators: They ended up receiving 400.4M, not 415M (-14.6)

• Treasury: It ended up receiving 363.198M, practically the same (363.2M)

Lockup terms: they will have their LDO tokens unlocked on December 17, 2021, followed by a 1y vesting period. These restrictions apply to developers, validators, investors, founders, and employees.

I found it pretty interesting that just at the start there was this 14.6M discrepancy. Having said that, in practical terms, there is not that much of a difference because both, Seed and Team and Validators, have the same lockup terms. Anyway, I think it was worth pointing out.

2. LABELING SEED, TEAM, AND VALIDATORS´ WALLETS

First, the main address to focus on to understand the distribution process is the Aragon Token Manager. It was created from the Lido: Deployer 1 address, and it basically manages the distribution among the different TGE participating wallets.

In this second section, our focus will be to understand the token distribution among Seed Investors and Team and Validators. The reason for this distinction is that these two categories have already been fully unlocked, while the Treasury Deals occurred after the initial token generation event and remain partially locked. My aim is to shed light on the distribution process by highlighting the labeled addresses for each category and presenting a comprehensive table with updated information on their holdings.

Seed Investors

Lido's $2 million seed funding round was supported by a diverse group of investors, including well-established venture capital firms and well-known angel investors.

Based on Messari´s Funding Round information:

Lido raised $2 million in a Dec. 2020 round backed by Semantic Ventures, ParaFi Capital, Terra, KR1, Stakefish, and Staking Facilities, among others. Angel investors, including Rune Christensen of MakerDAO, Stani Kulechov of Aave, and Kain Warwick of Synthetix, also participated in the round.

Once you have information about who were the parties involved, by going on-chain, you can try to match and verify the wallets that received an allocation from the Aragon Token Manager address (here is the Etherscan´s transaction). This process is done manually and involves checking if the wallet has sent funds to a previously identified and labeled address.

Although many of the wallets were difficult to identify, with the help of Arkham, I was able to successfully label some of them. Here is the list of the Seed Investors’ Ethereum addresses, with those that have been labeled highlighted for easier reference:

Team and Validators

Going back to the already mentioned January 7, 2020 blog post:

Founding members are also distributed LDO, with the respective amounts: 221,800,000 LDO for investors, 65,000,000 LDO for validators* and signature holders, 200,000,000 LDO for initial Lido developers, and 150,000,000 LDO for founders and future employees*.

If you sum up on-chain Team (and Developers) 1-8 allocations (label from Token Unlocks) you arrive at 340M, not 350M (-10M); and if you sum up Validators´ allocation you arrive at 60.4M, not 65M (-4.6M).

This goes back to the initial TGE distribution where we discovered that 14.6M discrepancy in favor of Seed Investors, which now can be further broken down into:

a) -10M for the reported allocation to the Team

b) -4.6M to Validators.

Here is the Etherscan´s transaction. In this case, information on the identities of the Team and Developers members and most of the Validators were not publicly available. However, some of them, such as Alex Svanevik from Nansen and Anton Bukov, can be identified thanks to labeled wallets in Arkham.

Seed and Validators´ identified addresses table

Lastly, now that we know the identity of some of these wallets, let's examine the behavior of the TGE participants after their LDO tokens vested on December 17, 2022.

Disclosure: there is nothing wrong with selling vested tokens, as long as they have fulfilled the lock-up terms. Understanding the actions of these individuals in the LDO market can provide valuable insights into the demand for and potential future value of the token.

I have chosen to only include publicly known participants and their labeled wallets in the table below for a specific reason. By doing so, it allows us to gain a better understanding of the behavior of the most recognizable players in the LDO market. This can give us a more accurate picture of how financially incentivized they remain in making Lido the leading LSD solution:

The table reveals that ParaFi Capital, Stakefish, Alex Svanevik from Nansen, and Stani Kulechov from Aave have fully sold their unlocked LDO. This could suggest that these individuals are no longer incentivized to make Lido the leading LSD protocol. It's worth noting that a few weeks ago, RocketPool (another LSD protocol) staked eth, rETH, was proposed to be added to Aave V3.

Here is another research report written by @YohanGGlobal that focuses on wallet-tracking every big dumper of LDO, aside from being identified or overall participants in these allocations.

3. TREASURY DIVERSIFICATION DEALS

The report now shifts its focus to the Treasury Deals, which happened after the initial TGE, where Lido pretty much included every important protocol inside the DeFi space.

The first deal (Treasury Diversification #1), was proposed in the Lido governance forum on April 2021, and ended up being approved on April 6. The objective of the proposal was to sell 100M LDO from the DAO´s Treasury allocation of 363.2M in exchange for 21600 ETH of funding, at $0.7 per LDO, with 1-year cliff and 1-year linear unlocking since the moment of purchase. The purchasers included Paradigm, other institutional investors like 3ac, Alameda, DragonFly, and Coinbase; and other angel investors like Calvin Liu, 0xMaki, Mariano Conti…

The second deal (Treasury Diversification #2), was proposed in the Lido governance forum on July 2022 and ended up being approved on August 4. The objective of the proposal was to sell 10M LDO from the DAO´s Treasury allocation in exchange for 24.27M DAI of funding, at $2.427 per LDO, with 1-year cliff unlock since the moment of purchase. The purchaser was DragonFly Ventures (the same entity that participated in Treasury Diversification #1).

Summary of both deals below:

As you can see, the motivation for both deals was to assemble a diverse group of stakeholders (36 more) with aligned incentives for the success of Lido, by including as many important players as possible in their “cap table”, through direct (angels) or indirect (institutional) investments.

Treasury Deal #1

Something interesting: since approved on the 6th of April 2021 there was a 1-month time frame given to these investors to purchase LDO with ETH through a smart contract. There were 3 Angel Investors who missed the deadline. They were given a second opportunity to purchase (voted again on Snapshot), with essentially the same terms: 1-year cliff and 1-year linear unlocking schedule, from the moment of the purchase.

This is the reason why they started vesting in the months of October-November, instead of the original month of May.

So on this second opportunity and 1-month timeframe deadline:

• Hart Lambur -0xcF4... purchased on the 9th of October 2021. Cliff: October 9, 2022, linear unlock until October 9, 2023.

• Danny Ryan, Core Researcher of Ethereum  -0xf948… purchased on the 15th of October 2021. Cliff: October 15, 2022, linear unlock until October 15, 2023.

• Ameen Soleimani from Spankchain - 0x3B2… purchased on the 1st of November 2021. Cliff: November 1, 2022, linear unlock until November 1, 2023.

Treasury Deal #2

Something interesting: the lockup terms are different between Treasury Deal #1 (the Paradigm + 35 investors round), and Treasury Deal #2 (DragonFly round). In this case there is only a 1y cliff unlock, which ended up being agreed upon by the DAO for two main reasons:

1. DragonFly has publicly (and more importantly) on-chain stated their belief in the long-term potential of the protocol. Despite being 75% unlocked, they haven´t sold any of their April 2021 allocation of 400 ETH worth of LDO, which they acquired at $0.7 per token. The current value of that LDO is 1150 ETH.

2. They decided to invest close to the local top. Which meant they ended up buying LDO at $2.427.

PRICE: 7-day backward-looking TWAP taken at the time of vote completion (August 4, 2022) + 5% premium

The final 7-day TWAP was $2.31 +5% premium: $2.427. DragonFly committed to the terms, and ended up purchasing through this smart contract:

Treasury Deals participants´ identified addresses table

In line with my approach for the Seed and Validator's table, I have exclusively selected to showcase publicly recognized participants and their identified wallets in order to try to gain an actionable understanding into their motives for selling or retaining their vested allocations.

The table reveals that:

• Paradigm has not sold any of their 53M unvested allocation (at least on-chain, we can´t really know if they traded OTC).

• DCG appears to not have sold any of its holdings, but this may not be completely true. They have sent their LDO across different wallets and maybe some of these transactions (despite not going to a CEX or DEX) were OTC trades with other entities.

• Alameda Research and Three Arrows Capital are constantly selling their daily vested Lido in batches (their wallets are on the Google Sheet spreadsheet).

• Institutional Investors overall seem to be selling more of their allocations. The main reason is that many of them end up failing and going bankrupt during the last cycle, and liquidators are in search of assets to sell.

CONCLUSION

In my opinion, the ultimate winner in the LSD space will be determined by the platform that has the most connections to other protocols, rather than just offering high yields for users. This quality is known as “moneyness” or even “capital efficiency”, the ability to use your staked ETH as collateral across different DeFi protocols.

Currently, Lido appears to be in the lead in this aspect due to its strong ties within the Ethereum and DeFi communities. As we have explained throughout the report this is because its funding rounds have involved investment from various important protocols within the DeFi space. And, even though some of these investors have sold their allocations, many other are still holding. This alignment of interests ensures that Lido is well-positioned to succeed, with the ultimate goal of establishing stETH as a form of money, a widely-used derivative for collateral across DeFi. It´s a winner takes all market.

In response to interest from the community, I have created a fundamental dashboard for LSD protocols. It looks at different fundamental and market data metrics of some of these protocols like Lido, RocketPool, Stakewise, Ankr, Frax Finance, and Staked.finance. Although it's not fully completed yet, here is the Google Sheet link. Thanks for reading!