In the first half of 2026, Lido only captured 5.7% of the staking increment, and the NEST repurchase mechanism fell into deficit.

Written by: Liam Akiba-Wright

Translated by: Luffy, Foresight News

Liquid staking protocol Lido, in the first half of 2026, only secured 5.7% of the net new total staked Ethereum. For LDO token holders, the operational challenge faced by this protocol is: how to generate DAO revenue in a continuously expanding market to support automated repurchases.

Lido's automated repurchase mechanism NEST intuitively reflects this contradiction (Note: NEST stands for Network Economic Support Tokenomics, which is Lido DAO's on-chain automated LDO repurchase mechanism that utilizes fixed, uncontrollable on-chain rules to repurchase LDO with the protocol's staked surplus income). On September 9, the contract responsible for releasing repurchase funds triggered a check, but no fund allocation was executed this time. The NEST budget was negative, indicating a gap in the amount available for repurchase. Although funds were ready, according to the rules, more surplus must be accumulated to initiate repurchase operations.

The direction of institutional capital is one reason for this operational predicament. Lido's report for the first half of the year showed that large amounts of funds flowed into fields not covered by Lido; currently, products launched for institutional clients have also implemented fee reduction policies to prioritize market adoption over short-term revenue. The price of ETH in dollars and the rewards generated per staked ETH also affect the final returns.

The market size continues to expand, but the share is shrinking

Lido's report for the first half of the year showed that by June 30, the total staked Ethereum reached 43.1 million ETH, up from 36.3 million ETH at the beginning of the year. Lido added 386,000 ETH staked in the first half of the year, with the total staked amount growing from about 8.74 million ETH at the year's start to 9.13 million ETH.

The total staked amount across the network added a total of 6.8 million ETH in the first half of the year, with Lido accounting for only 5.7% of the new portion. Its statistical market share dropped from 23.93% to 21.18%. The above data are historical statistics, including ETH queued for activation and not including ETH in the exit queue. The data reflects that as of June 30, even with a positive net growth of Lido staked in the first half of the year, there were still months with capital outflows, diluting the overall market share.

Lido believes the dilution of share largely stems from institutional funds choosing other staking service providers. Its market disassembly data shows that in the first half of the year, the share of institutional funds in the Ethereum staking market increased from 25.9% to 35.3%.

Data from the same report shows that as of June 30, Bitmine accounted for 11.5%, Coinbase for 10.9%, and Binance for 7.9%. These labels represent different entities in the staking chain. The report separately lists Grayscale at 3.1%, labeled "conducting business through Coinbase"; if these entities are simply added together, it will result in a duplication statistical error.

The underlying economic logic is simpler than the rankings. Institutions can choose other service providers to obtain Ethereum staking rewards without generating protocol fees for Lido. The overall growth of the staking market benefits other staking fields while simultaneously diluting Lido's total share.

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

Choosing different products directly determines which fee income DAO can obtain. Lido also launched stVault staking vault, which has independent rate rules. Lido announced that operators running stVault with a total locked amount exceeding 250 ETH would be exempt from Lido infrastructure fees for qualified stVaults before October 31.

This reduction policy is only for the infrastructure fees of qualified vaults; other fees and Lido's remaining products still follow the original terms. The growth of qualified vault balances can enhance product adoption, but the reduced portion will not bring income to the protocol.

Lido's report for the first half of the year shows that the actual share of DAO in staking rewards increased to 6.15%, up from 4.96% in December last year, while the total protocol fee rate remained unchanged at 10%. The revenue distribution ratio between DAO and node operators is as crucial as the surface total fee rate. The reported actual sharing corresponds to the profit level at the end of the first half of the year, with various products still having their own independent rates.

To carry out a simple sensitivity calculation: assuming an additional 100,000 ETH enters staking with an annualized reward of 2.59%, DAO would receive 6.15% of the rewards. Estimating the ETH price at $2,500, this staking could bring approximately 159 ETH per year to DAO, equivalent to $398,000 in staking income.

This calculation assumes that all conditions are fixed. Actual income depends on active staking volume, reward rate, ETH dollar price, and the rate terms that determine DAO's retained earnings. Obtaining deposits and earning income from deposits are two independent business processes.

The cost of staking activation queuing also affects product choices. On September 9, node queue data showed that a total of 1,931,206 ETH were waiting to be activated, with an estimated wait time of 33 days and 13 hours; the total amount of ETH staked has reached 43 million, with an annualized staking reward rate of 2.59%.

A new deposit queued at the end will incur a potential reward loss of approximately 0.24% of the principal corresponding to potential reward earnings under the assumptions of a fixed 2.59% annualized rate and waiting period, before deducting fees and compound interest. This figure only represents the estimated delayed reward loss under hypothetical conditions and actual rewards and waiting times will vary.

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

Current verification nodes have another solution. Lido's blog introduced a verification node migration plan: most existing staked funds can continue to generate returns; once the target node is transferred to stVault, it will wait for activation. There is still a time lag between the initial deposited funds and subsequent fund transfers.

Thus, new deposits, existing liquid staking positions, and migrating verification nodes will all face different costs due to queuing. For Lido, the core business question is: Can liquidity and node migration schemes attract funds and ultimately generate income for DAO?

How DAO income is converted into repurchase quota

The complete chain of LDO token repurchase is: Staked assets generate fees → Form DAO income → Calculate surplus according to NEST reserve formula. Funds must be in place and meet execution conditions before market buy-ins can be executed. The unaudited financial report for the first half of the year showed that after paying rewards to stETH holders, Lido's staking business gross income was $27.51 million; after deducting various expenditures, the net staking income was $15.71 million. Adding earnings from the Earn business, the total net income of DAO was $15.94 million.

The report suggests that the shrinkage in dollar income primarily results from the decline in ETH prices. The staking business itself still generated $6.73 million in product-level profit. At the DAO and foundation level, the foundation's expenditures were $14.33 million, leaving an operational surplus of $1.61 million; coupled with a one-time loss of $6.06 million associated with the Kelp project, the final overall net loss amounted to $4.45 million.

Clarifying these revenue and expenditure items indicates that the decline in market share cannot simply be attributed to financial pressure.

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

According to the proposal rules of LIP-36, NEST will deduct a reserve of $109,589 daily from the statistical revenue (equivalent to about $40 million annually), with 50% of the surplus counted towards the accumulated budget. Once the budget is negative, surplus must be accumulated again to restore spending.

The initial price floor for ETH is set to 0. The approximately $2,730 breakeven point calculated in the first half of the report, is jointly determined by staking scale, reward rate, and DAO share ratio, describing the daily revenue balance status, and the contract will continue to carry forward historical deficits. An increase in ETH prices alone is not sufficient to offset the cumulative accounting deficit.

NEST also requires that funds be in place and meet operational qualifications. The daily repurchase limit is $50,000, and the total limit within a continuous 365-day period is $10 million. These are merely the maximum allowed limits; actual expenditures are still constrained by budgets and various eligibility conditions.

On September 9, on-chain data showed that the fund allocation contract address records: on August 28, only a single transfer of 41 stETH for reserve was made, with no allocation records of any outward transfers. Funds remained in the allocation contract, consistent with the skipped repurchase operations at the September 9 checkpoint.

Lido previously executed another proactive repurchase plan, cumulatively buying 10,025,866 LDO, costing 1,591 stETH, with the second batch of repurchases completed in July. This proactive repurchase project is independent of the NEST automated repurchase.

LDO acquired through the NEST mechanism will be stored in the DAO treasury, with the tokens owned by DAO. NEST will neither destroy tokens nor automatically distribute them to holders.

For LDO holders, the core observation indicators are: the staking scale generating fees, the percentage of rewards the DAO can retain, and the cumulative budget available for repurchase. Only if institutional funds flow into Lido in a fee-paying manner can institutional staking growth improve this revenue model. The contract checkpoint on September 9 indicates that even with the continuous expansion of the Ethereum staking market, the automated repurchase mechanism with reserve funds may still lack available surplus.