Reevaluation of Lido on Polygon state

Description

Overview

This proposal outlines the request to reevaluate the economics of Lido on Polygon middleware or to transition towards sunsetting.

If the sunsetting option is chosen, an organized sunsetting process will be implemented to discontinue Lido on Polygon operations. This will include stopping new deposits, notifying integrators, and supporting users in withdrawing their staked tokens. The middleware operations will officially conclude by mid-2025, with all necessary user support and technical preparations in place to ensure a smooth transition. The total cost for covering technical maintenance and user support during sunset is 100k USD.

If the option to initiate additional research is chosen, a dedicated evaluation group, led by Lido DAO Contributors and Shard Labs, will conduct a comprehensive analysis of the market viability and economic sustainability of continuing the liquid staking middleware for the Polygon POS chain. This group will also review and adjust the fee structure to reflect the operational costs of the upcoming Polygon 2.0 upgrade, ensuring alignment with the DAO’s financial framework. The preliminary cost estimate for rewriting the middleware is 1.5 million USD for the next year of operations.

Background

Despite initial optimism and significant investments, Lido on Polygon proposal by Shard Labs guided by community comments was flawed in terms of economics and has not lived up to expectations.

A similar situation was observed on all of the Lido on X editions. The latest one is highlighted with Lido on Solana.

Lido on Polygon (LoP for further reference) has faced challenges such as low user adoption, insufficient rewards on time and resources investment due to limited Polygon ecosystem growth, and increased competition for a small capturable market. In reality, with the DeFi migration push towards zkEVM, demand for Polygon POS and liquid staking as a building block of other protocols lost its footing.

These factors necessitate a reevaluation of current and future economic modifications to ensure the middleware survival or the discontinuation of the staking middleware to maintain Lido DAO focus on Ethereum, as voted in GOOSE and reGOOSE.

Proposal Details

Option Sunset Lido on Polygon

This option requires a gradual, organized sunsetting with the following characteristics:

1. Key Dates for Sunsetting:

   • Announcement Date: December, 2024
   • Stop New UI Staking Deposits: December, 2024
   • Official Termination: Late H1, 2025

2. Steps to Implement Sunsetting:

   • Notifying the integrators: inform all integrators (e.g., Aave, QuickSwap) to delist the token
   • Notifying the users of key dates and steps they need to take via Lido Research Forum and other channels
   • Provide Methodological support: provide detailed guides and other content to help users withdraw their staked MATIC smoothly
   • Prepare UI and provide Tech support: ensure all staked MATIC will be available for withdrawal by late H1, 2025; users will be able to withdraw their funds via the Lido on Polygon middleware UI; after that date, withdrawals will be possible only using explorer tools
   • On-chain steps: will be executed by the Lido on Polygon multisig in two bundles. No further DAO on-chain vote is required.
     • First bundle: remove all node operators and temporarily pause the middleware (during the unbinding period)
     • Second bundle: unpause the middleware allowing transferring MATIC to stMATIC contract to fulfill users’ withdrawal requests. Middleware will remain unpaused as there is no way to pause just the submit function. However, staking will be disabled in UI. If, for any reason, users still submit funds to contracts, they will remain claimable forever.
   • Closure of Operations: Officially terminate the LoP operations by late H1, 2025

3. Operational Costs:

   Request $20000 DAI/USDT/USDC per month for 5 months to cover technical maintenance and user support during the sunsetting period. This is in line with DAO-approved sunsetting Lido on X initiatives (see: Lido on Solana: next steps, Sunset of Polkadot and Kusama).

4. Wrapping up Lido on Polygon Multisig

   The Original Lido DAO and Shard Labs agreement sets out an 80:20 revenue share between the parties. LoP middleware itself is implemented so that protocol fees are sent to Lido DAO Treasury and Lido on Polygon multisig in a 50:50 ratio. As Shard Labs never claimed any funds from either source, we propose that Shard Labs’s part be paid out from multisig (two-fifths of the MATIC in the Lido on Polygon multisig) and the rest be transferred to the Treasury. That is in line with the above-mentioned agreement.

Option Initiate reevaluation

This option entails forming a dedicated group to reassess the Lido on Polygon's future. The preliminary cost estimate for rewriting the middleware stands at 1.5 million USD for the next year of operations. The current state of Lido on Polygon, to help illustrate the need for these expenditures, can be reviewed here: Lido on Polygon Metrics.

Evaluation Group Formation: Lido DAO Contributors and Shard Labs (and optionally some third parties) will form an evaluation group with backgrounds in DeFi tech, BD and marketing to analyze the market conditions and viability of continuing liquid staking middleware support for the Polygon POS chain.

Costs and fees: Preliminary prediction of the development and maintenance pricing given the incoming Polygon 2.0 upgrade (which requires middleware rewrite) is in the same ballpark as Lido on Solana with 1.5 million USD for the next year of operations. Given current fee structure is an 80:20 split where 80% goes to the DAO treasury and 20% to Shard Labs, the expectation is that DAO funds 80% of the efforts to continue the operations.

Conclusion

Regardless of the result of the vote held by token holders, Shard Labs will respect any decision made and continue to operate in good faith, adhering to the mission, vision, and purpose of Lido DAO.