Lido DAO Proposes Automated LDO Buybacks to Reduce Supply and Strengthen On-Chain Liquidity

• Lido Dao proposes automated LDO buybacks as a deflationary mechanism

• Automated activation only when revenue surpasses $40 million and ETH > $3,000, while Buybacks are capped at $10M annually.

The Lido DAO community is exploring a major token-economic shift. In a significant turnaround, the firm seeks an automated buyback mechanism to repurchase LDO using excess staking revenue. The proposal, now live on the Lido DAO Forum, aims to reduce the circulating supply and deepen on-chain liquidity for LDO.

This marks one of the protocol’s most ambitious treasury-management initiatives to date. If approved, implementation could begin as early as Q1 2026.

With Ethereum trading above $3,500 and Lido generating more than $94 million in annualized staking revenue, the criteria for activating the mechanism are already met.

Early sentiment among token holders and analysts is optimistic, though community discussions are ongoing regarding execution parameters and long-term market impact.

Why Lido Is Considering Automated LDO Buybacks

Lido remains the largest liquid-staking protocol on Ethereum, commanding substantial revenue from staking participation. Under the new proposal, a portion of surplus revenue up to a cap of $10 million annually would be directed toward buying LDO when network revenue exceeds $40 million and ETH trades above $3,000.

These thresholds are intentional. In high-revenue markets, surplus buybacks can reduce circulating LDO while avoiding unnecessary token depletion during downturns. In essence, the buyback model follows an anti-cyclical design, accumulating treasury value when conditions are favorable while dialing back activity when markets soften.

The mechanism is meant to strengthen Lido governance token economics without compromising protocol reserves, aligning incentives between stakers, token holders, and governance.

How the Lido Dao Buyback System Would Work

Instead of simple buy-and-burn logic, the proposal introduces a structured process using the NEST framework. Acquired LDO would be paired with wrapped staked ETH (wstETH) inside a Uniswap-V2–style liquidity position managed by the DAO’s Aragon Agent contract.

This structure removes LDO from circulation while simultaneously reinforcing on-chain liquidity—an approach inspired by MakerDAO’s Smart Burn Engine.

Key operational parameters

Automated activation only when revenue > $40M and ETH > $3,000, while Buybacks are capped at $10M annually. Additionally, the distribution is set at 50% of treasury inflows beyond the $40M threshold, with the execution sized to minimize slippage (<2% per trade).

Current numbers suggest roughly $4 million in surplus could already be deployed under this model, executed gradually across multiple transactions rather than in a single, significant buy event.

This helps avoid excessive price volatility and ensures liquidity depth increases over time. The DAO also stands to earn fees from the liquidity position, adding long-term utility to the buyback pool.

Boosting Liquidity Without Flooding the Market

A traditional buyback typically reduces supply but does little to improve market depth. This proposal addresses both concerns simultaneously.

By holding LDO–wstETH as LP tokens, the DAO effectively locks in supply while expanding liquidity options for traders and stakers. LDO liquidity is occasionally thin, especially in on-chain markets. Thus, this approach mitigates bottlenecks that could arise as more governance or protocol integrations start using LDO.

Over time, strengthening the order book could improve price stability, reduce slippage for traders, and make LDO more attractive for integration across DeFi.

Growing Accumulation and Market Positioning

The proposal arrives amid on-chain data showing accumulation by large token holders and protocols, signaling growing confidence in Lido’s long-term viability. Despite uncertainty about short-term price effects, community sentiment is supportive, especially among members who prioritize liquidity efficiency and capital management.

If the proposal passes, automated buybacks could become a recurring component of Lido’s financial strategy, further aligning token utility with protocol growth.

Potential Concerns and Community Debate

Some DAO members have raised concerns about: the Complexity of structured LP mechanics, the development overhead, and whether liquidity deployment could affect market pricing.

Others have pointed out that simplicity, such as straightforward repurchases, could achieve similar outcomes without engineering additional layers.

Still, proponents argue that pairing LDO with wstETH in liquidity pools is a best-of-both-worlds strategy: shrinking supply while amplifying liquidity, rather than locking LDO in static treasury storage.

The DAO will continue gathering feedback before the initiative is put to a Snapshot vote.

Looking Ahead: A 2026 Implementation Target

If approved, implementation is expected around Q1 2026, offering ample time for refinement, code audits, and community review. Governance will ultimately control settings, meaning parameters such as revenue thresholds, execution size, or activation criteria can evolve.

What is clear is that Lido is moving toward a more active and structured treasury strategy, one designed to support token value, liquidity sustainability, and system-wide capital efficiency.

As the most significant player in Ethereum liquid staking, Lido’s shift to automated buybacks could influence how other protocols deploy their treasuries in the years ahead.