Lido just proposed enshrined buybacks. A day after Uniswap’s much bigger governance overhaul, I can see that some people are struggling to compare the two, so here is what Lido’s proposal is all about, why it’s great for LDO holders, and how it compares to Uniswap’s. (Note: Uniswap's proposal is both excellent and much-needed, and I will comment on it in more detail elsewhere.) "For being posted a day after Uniswap’s, it’s nothing alike… No retroactive burn, no corporate restructuring, no real alignment" First off, in Lido, there is no need for a governance restructuring, because it has been doing these things right from the start: Revenues have always been DAO-controlled, with no dual equity/token setup, and the token supply is already 90 % distributed. The only remaining dilution is ~2% for contributor grants over four years. The buyback proposal is more interesting, so let's talk about that. "A buyback for ants? Lido proposes a ~$4m / year LDO buyback (capped at $10m / year if all conditions are met)" Some people are misreading this proposal. It’s not that there are 4-$10m buybacks coming up soon - it’s about enshrining buybacks into Lido’s core policy. Think of it as a rules-based, automated capital-allocation mechanism. There are multiple goals that any smart buyback mechanism should try to solve: a. VALUE CREATION: do not destroy (!) value for owners (LDO holders). This is achieved by acyclical trading of the token. b. INCENTIVE ALIGNMENT: Raise the barriers for growing budgets on the contributor team, but without stifling allocation for growth c. SIMPLICITY: package all of this into a mechanism that is simple enough to automate and doesn't require constant adjustment Especially the first two goals are highly related, as not all buybacks create value. The intuition is this: value from buybacks is created only if the present value to tokenholders exceeds the discounted value of future cash flows from reinvesting the same value within the protocol (e.g., on growth, optionality, ...). In other words, LDO holders should consider themselves owners of the DAO and its treasury. If this were your business, under what conditions would you move money out of it to fund your personal life/investments? A reductio ad absurdum can show how buybacks can thus obviously destroy value: if owners "withdrew" 100% of revenue + treasury, they would have to stop all work on the protocol (contributors, liquidity, etc.) The protocol would keep running for a while, but eventually breaks in a future Ethereum upgrade, and/or is surpassed by competitors. Thus, users abandon it and the value of YOUR own business collapses to zero. Congrats, that was a stupid mistake. Let's unwind that. Instead, the goal must be to establish a good balance between allocating revenue to the various goals —maintaining the protocol, growing customers, and being resilient in bear markets —while at the same time establishing a baseline for what qualifies as "excess" beyond these basic needs. A smaller, but still destructive, issue is avoiding becoming a cyclical trader of your own token. As in, if Lido were always to buy LDO at the top and sell it at the bottom, it's clear how you rack up a negative PNL compared to keeping the money in the treasury. So the specific buyback strategy is also essential. Lido's current proposal is to thread the needle between these three different goals: - Buybacks trigger only if annualized revenue > 40 M - Up to 50 % of surplus used for buybacks - Disabled when ETH > $3k (avoid selling ETH during bull runs) - Target size ≈ 4–10 M / yr So where does that leave us? Expectations in large buybacks right away are clearly misplaced. Lido makes a small profit today, and that will be used for buybacks - using more would be irresponsible and value-destructive for owners. But the (very real) improvement is automating capital discipline: as Lido scales its revenue, buybacks scale automatically. As one of the oldest and strongest brands in Defi, with >350k unique stakers, Lido has a lot of room to grow revenues - from increasing its staking market share, increasing its margin from staking, a rising ETH price, from making complementary products to staking (e.g. https://stake.lido.fi/earn), and to expand horizontally into other services around other assets (e.g. stablecoins). I have my own thoughts on how to improve this mechanism further, for example - somewhat raise the revenue hurdle, but increase the % used for buybacks above the hurdle much closer to 100% - keep the ETHUSD hurdle, but replace it with a moving average - make trading even more cyclical by considering LDO/ETH and P/E ratio - remove the $10m/year cap completely So, these are my thoughts. What do you think?(Hasu⚡️🤖)