Lido Finance Prepares Update to Support Staked ETH Withdrawals

Ahead of the Shanghai hard fork on Ethereum, Lido Finance will update the protocol’s functionality. Lido V2 will allow users to withdraw staked ETH, while an upgrade to The Staking Router will increase the protocol’s scalability.

Lido Finance Prepares Major Update for Lido V2 Protocol

The team behind the Lido Finance liquid staking protocol is preparing an update to Lido V2. According to the developers, this will be the largest update in the protocol’s history and “a step change on the road toward further decentralization.”

The planned update includes two main areas:

  • Introducing The Staking Router (SR), a modular architecture that enables market participants, including solo stakers, to become node operators.
  • Releasing an option to withdraw staked ETH. Holders of stETH will be able to easily exchange them for the original token after Ethereum’s Shanghai hard fork.

Lido SR will allow the protocol’s users to easily interact and collaboratively “drive the future of a decentralized Ethereum.” The update will make Lido an extensible protocol thanks to the modular design of The Staking Router. Thus, the following modules will be available in Lido V2:

  • Community Module. These modules will act as a power source for the protocol.
  • DVT Module. It’ll allow users to manage the internal registry of operators.
  • Off Chain or L2 Module. It’ll distribute rewards between the operators by storing validator keys.

The staked ETH withdrawal mechanism, which will be part of the Lido V2 protocol, will have two modes: 

  • Turbo mode or default mode. Withdrawal requests in this mode will be executed within hours, allowing users to quickly withdraw all available ETH — deposits or rewards.
  • Bunker mode or catastrophic scenario mode. The purpose is to prevent possible manipulation during withdrawals of ETH. Withdrawal requests will take from several hours to several weeks.

Withdrawing staked ETH in Bunker mode will be done in three stages:

  • Request — users will be prompted to lock stETH to begin withdrawals.
  • Fulfillment — the protocol will lock ETH to fulfill the request and burn the locked stETH, and then mark the withdrawal request as claimable.
  • Claim — locked and marked ETH will be available for withdrawal after approval.

Lido V2 is tentatively scheduled to launch in April 2023. The protocol is now undergoing a security audit, and the developers are preparing to put the proposed innovations to a vote in the DAO. Testing of Lido V2 is likely to be run on the Goerli testnet in early March.

Recall that Lido Finance’s TVL reached $8 billion in January because of its ability to access liquid Ethereum derivatives.

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