With help from an anonymous whale, Lido rejected a proposed deal with Dragonfly Capital on Monday.
In an attempt to cushion itself against an extended crypto winter, Lido’s leadership had proposed selling 10M LDO to Dragonfly Capital for stablecoins at $1.45 per token. LDO, the governance token of crypto’s largest liquid staking protocol, was trading at $1.60 on Sunday night in New York.
But Lido’s deal with Dragonfly, which had to be approved by LDO holders, proved controversial. Skeptical LDO holders argued that the deal’s terms effectively gave the venture capital firm “free money,” and accused an anonymous high-roller of hijacking the vote on Dragonfly’s behalf.
But another big LDO holder entered the fray over the weekend, tipping the vote to scuttle the deal. A revamped proposal is expected in the coming days.
Treasury Diversification
Lido and other liquid staking protocols allow users to simultaneously stake their Ether and access their locked liquidity using derivative tokens backed 1:1 by their staked ETH. Derivative tokens like Lido’s stETH can then be used to earn yield in the wider crypto ecosystem.
The Lido DAO’s treasury is denominated almost entirely in LDO, ETH and stETH. According to one community member’s back-of-the-napkin math, a precipitous drop in the value of those tokens could bankrupt the organization within a year at current spending rates.
Swapping some of the LDO in its treasury for DAI – a stablecoin pegged 1:1 to the U.S. dollar – would give the organization enough runway to continue paying its 75 employees through a months- or years-long collapse in the price of Ether, according to proponents of the sale.
“Not selling ETH to USD [last year] was an avoidable mistake. Lido should’ve sold ETH to USD gradually when ETH was higher,” Cobie, the protocol’s founder, wrote Lido’s governance forum. “Now they have to sell … LDO to compensate for that mistake. They should learn from that and hire a good CFO to avoid these mistakes in the future.”
When the deal was announced on July 18, the two-week average price of LDO was almost $0.97. Dragonfly offered to buy it at 1.5 times that price, something Jacob Blish, Lido’s head of business development, said would put “a buffer in place to disincentivize immediate selling pressure.” Blish did not respond to a request for comment sent over LinkedIn.
LDO Soars As Merge Nears
But forces beyond either party’s control complicated things. As anticipation mounts for Ethereum’s fall transition to the less energy-intensive, environmentally friendly proof-of-stake architecture, the price of LDO has soared along with Ether.
LDO is now trading at $1.60, according to The Defiant’s recently released charting tool – higher than the price at which Dragonfly agreed to buy it. In the governance forum, some suggested selling LDO on the open market.
LDO Price. Source: The Defiant Terminal
To Lock, Or Not To Lock
Another aspect of the deal has proved even more controversial, however.
Per the deal’s terms, the tokens Lido would sell would come without a so-called lockup period, worrying skeptical LDO holders who believe Dragonfly could sell the surging token at the earliest convenient moment, adding selling pressure in an already weak market.
Opposition to the lack of a lockup was nearly unanimous.
“Selling to them at these prices without unlock [is] literally giving VCs free money,” wrote YameteOniichan9. “Seems prudent to be cautious in a bear market but not supporting anything without vesting.”
Cobie agreed.
“It doesn’t make much sense to me for there to be no lockup on tokens,” he wrote. “If people/funds/entities/VCs would like to buy LDO directly from Lido, at spot, with best-possible execution price (likely 10-20% cheaper than they’d be able to execute otherwise) the minimum commitment should be to supporting Lido for at least one year.”
Dragonfly General Partner Ashwin Ramachandran jumped into the debate to explain.
“The entity we’re using to purchase LDO tokens from the DAO has liquidity restrictions,” he wrote. “This means it’s difficult for us to invest in illiquid token deals, hence the no-lockup structure of this deal.”
The argument didn’t seem to sway observers, who continued to call for a lockup period in the forum. Dragonfly did not immediately respond to a request for comment.
The Vote
When Blish put the proposal before LDO holders for a vote, they were given three options: To proceed with the proposed deal, to proceed with the proposed deal with a one-year lockup, and finally, to scuttle the deal.
Killing the deal was the overwhelming choice when voting opened. But then, in a move that drew howls from the community and other observers, an anonymous wallet holding 15M LDO voted to proceed with the deal – with no lockup.
Alex Svanevik, CEO of crypto analytics firm Nansen, said that the LDO tokens were supplied to the anonymous whale through trading firm Alameda Research. Alameda CEO Sam Trabucco did not immediately respond to a request for comment on Saturday.
Whatever the case, it may not matter.
A wallet holding 17M LDO, labeled “Found on Celo” by Nansen’s wallet tracker, voted to scuttle the proposal.
When voting closed on Monday at 3 p.m. New York time, that option was the clear winner with two-thirds of the vote.
Blish has said he will open another vote after getting community feedback regarding a modified proposal.
Ramachandran, after initially saying Dragonfly would not budge on the purchase price of $1.45 per LDO, changed his mind on Friday. Dragonfly would buy it at that price or at the “7-day backward looking [two week average price] taken at the time of vote completion + 5% premium” – whichever was higher.
Whether LDO holders will support his revised proposal remains to be seen. Debate in the forum was limited on Monday, and it was not immediately clear when a revised proposal would be put to a vote.
UPDATED on 7/25 @ 4pm ET to show the final result of the vote.
