Protocol Anatomy

Liquid staking

Lido

Lido is a liquid staking protocol for ether. A deposit mints shares in a pool of validators. stETH rebases so balances track the pool. wstETH wraps those shares into a static balance. Exiting is a queued withdrawal finalized by an accounting report, not a transfer of the liquid token.

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Share accounting and the withdrawal queue are the production design documented in Lido’s core contracts. Dual Governance has been live on Ethereum mainnet since 4 July 2025, as described by Lido.

Lido takes ETH that a user could have staked directly and pools it with other deposits. The user receives a token that can be transferred while the underlying ether sits in Ethereum validators. The protocol’s own accounting problem is the share: how much of the pooled ether, including rewards and penalties, belongs to each holder, and how that ether comes back out.

The mechanism is not an AMM and not a lending market. Nothing in the share rate prices a trade. The exit guide covers the withdrawal queue and Dual Governance in more detail. This page is the deposit, the share, and the report that changes the share’s price.

Deposit and shares

A user submits ETH to the Lido contract and receives stETH. Internally the protocol mints shares. The integration guide defines a share as the holder’s fraction of the ether the protocol controls. The balance people see is that share priced in ether:

stETH balance = shares * totalPooledEther / totalShares

The guide describes this as the bookkeeping model. Rounding lives in the contract, so an integration should call the view methods rather than reimplement the division. When new ETH is deposited, new shares are minted in proportion to what that ETH adds to the pool. When rewards arrive, the protocol does not mint a second token to each holder. It changes the pooled-ether total, and every share becomes worth more stETH. Penalties do the opposite.

That balance change is a rebase. The integration guide says rebases normally follow the consensus-layer accounting report, and that a negative daily rebase had not occurred at the time that guide was written. “Had not occurred” is not a promise that a slash cannot reduce balances. The share math allows it.

Simplified model Liquid staking deposit and exit
  1. DepositThe user sends the staking asset and receives a liquid claim. The claim is a share of the pool, not a receipt for a named validator.
  2. DelegationThe protocol assigns stake to operators or validators. Rewards and penalties land in the pool.
  3. Accounting reportAn oracle or similar reporter updates the pool’s asset balance. Share value changes for every holder.
  4. ExitWithdrawal is a request, then a wait, then a claim. It is not the same transaction as a transfer of the liquid token.

The exit queue, the reporter, and the operator set are trust boundaries. Transferring the liquid token does not by itself unstake the underlying asset.

Submitted ETH is not instantly one validator. Ethereum requires 32 ETH to activate a validator, and Lido batches deposits into the consensus-layer deposit contract. Until then, ether can sit in a buffer. The buffer is still part of the pooled accounting. It is not a separate product.

Who runs the validators

Lido does not replace Ethereum’s validator set with a single contract. Node operators run the validators. Which operators are admitted, and under which module, is a protocol and governance choice. Rewards, downtime penalties, and slashings are Ethereum consensus events that later show up in the share rate. A transfer of stETH does not move a validator key.

This is the main trust boundary. The token is liquid. The stake is operated by other parties, under Ethereum’s rules, with a governance process deciding the operator set.

The accounting report

The share rate does not update itself from beacon-chain state. An oracle committee submits a report. In AccountingOracle at core tag v3.0.2, the report includes the consensus-layer balance, withdrawal-vault and execution-layer reward balances, the number of validators, shares to burn, withdrawal-finalization batches, a simulated share rate, and a bunker-mode flag.

The simulated share rate is documented in that contract as pooled ether per share at 1e27 precision, computed for the report before withdrawal finalization is applied. The protocol then uses it when finalizing the queue. Bunker mode is a boolean on the same report. The contract comment says it reflects whether the protocol should be in bunker mode at the reference slot. How that flag changes the queue is part of the withdrawal design; this page does not invent a second definition. Read the withdrawal docs before assuming a normal finalization during a mass slashing.

The report is a trusted input. A wrong consensus balance becomes a wrong rebase. The safety checks around the report, including the sanity checker referenced from the accounting flow, are there because the staking contract cannot see beacon state on its own.

wstETH

Rebasing breaks integrations that store a balance and expect it to stay still. wstETH is the wrapper. At core v3.0.2, wrap does three things: it requires a non-zero amount, it converts stETH to shares with getSharesByPooledEth, and it mints that many wstETH while pulling the stETH in.

function wrap(uint256 _stETHAmount) external returns (uint256) {
    require(_stETHAmount > 0, "wstETH: can't wrap zero stETH");
    uint256 wstETHAmount = stETH.getSharesByPooledEth(_stETHAmount);
    _mint(msg.sender, wstETHAmount);
    stETH.transferFrom(msg.sender, address(this), _stETHAmount);
    return wstETHAmount;
}

That is the wrapper’s source, not a simplification. One wstETH is one share locked in the wrapper. The wstETH balance does not change when the oracle reports. stEthPerToken does. Unwrapping burns wstETH and returns the stETH those shares are worth at the current rate.

The contract also accepts raw ETH in receive and submits it, minting wstETH for the resulting shares. Sending ETH to the wrapper is a stake-and-wrap, not a donation.

Withdrawals are a second system

Transferring stETH sells or moves the claim. It does not unstake. To receive ETH from the protocol, a holder requests a withdrawal. The withdrawal-queue documentation says the queue locks stETH or wstETH, mints an ERC-721 (unstETH) that represents the claim, and later pays ETH when the request is finalized. Finalization is part of the accounting-oracle report. The NFT is burned on claim.

The Lido withdrawal interface says that under normal conditions the wait is often one to five days, and that wstETH is unwrapped to stETH in the process. That interval is the interface’s description of normal operation. The consensus-layer exit queue can be longer. A request is not a redemption at the block it is submitted.

The exit guide connects this queue to Dual Governance, which Lido’s overview says went live on Ethereum on 4 July 2025. The short version: stETH holders can escrow stETH, wstETH, or withdrawal NFTs to delay a DAO proposal, because a contentious upgrade could otherwise land before a large exit finishes.

Assumptions worth stating plainly

  • The share rate is only as honest as the oracle report and the sanity checks around it.
  • Validator performance is an Ethereum consensus fact, reported later. Lido cannot make a slashing not reduce pooled ether.
  • The operator set is permissioned by governance and module rules. “Liquid” describes the token, not the validator keys.
  • Withdrawal timing depends on Ethereum’s exit machinery and on whether bunker mode changes finalization.
  • Governance can still change upgradeable protocol contracts, subject to the timelock and, since July 2025, the Dual Governance delay Lido documents. The delay is not the same thing as the core staking math being immutable.

stETH is also an asset inside other protocols. Aave can list it as collateral. Curve can pool it as a rebasing coin. Those integrations import this share accounting. They do not replace the withdrawal queue.

Versions in this overview

  • Share accounting (active) stETH balances are shares priced by pooled ether. wstETH is the non-rebasing wrapper.
  • Withdrawals (active) Request, oracle finalization, and claim. The claim is an ERC-721 until it is burned.
  • Dual Governance (active) Live on Ethereum since 4 July 2025 according to Lido’s overview. It gives stETH holders a delay path against DAO execution.

Sources

  1. Lido tokens integration guide
    Documentation · Lido
  2. wstETH contract documentation
    Documentation · Lido
  3. WstETH.sol at core v3.0.2
    Source code · Lido
  4. WithdrawalQueue ERC-721
    Documentation · Lido
  5. AccountingOracle.sol at core v3.0.2
    Source code · Lido
  6. Dual Governance overview
    Governance · Lido
  7. Dual Governance guide
    Documentation · Lido
  8. Lido withdrawal interface
    Documentation · Lido