Lido is Still Unprofitable Despite Being the Largest DeFi Protocol

Ethereum’s top liquid staking protocol, Lido, shows how platform size and adoption don’t directly correlate to profitability.

Despite commanding over $25 billion in total value locked (TVL), Lido has had an average monthly loss of $7.9 million since its launch in December 2020. The protocol didn’t record its first positive month until June 2023, netting $782,000 after expenses.

To date, Lido’s most profitable month was March 2024, when the protocol made $2.6 million, and its least profitable month was September 2021, with a $50 million loss, 94% of which went to liquidity expenses. It has only had seven profitable months and lost $447,000 in July.

Lido is also one of the largest fee generators in DeFi, with nearly $1 billion in annualized fees. However, operating expenses, liquidity expenses, and cost of revenue have been major hurdles to overcome during its first three years. According to the Dune dashboard, Lido’s cost of revenue includes node rewards, slashing and other rewards.

Still, the outlook is improving. Lido’s costs, particularly its liquidity expenses, have begun to narrow, and its revenue began to increase since May 2023, in line with its v2 upgrade, which allowed users to withdraw their ETH from the platform.

Lido’s v2 upgrade, combined with EigenLayer’s slow rollout that began in July 2023, helped bolster Lido’s TVL and revenue generation, making the protocol economics more sustainable. Since the start of 2024, the protocol’s income is negative $2 million, however, that marks a significant improvement compared to 2023, which incurred a $40 million loss.

Lido did not respond to The Defiant’s request for comment.

The Lido DAO token, LDO, has been mostly uncorrelated to the protocol’s profitability and TVL. After the v2 upgrade in May 2023, the LDO token price fell as much as 30% over the next five months, while the protocol’s TVL grew by 15%, and its profitability stayed relatively flat, with a $300,000 loss over the time period.

LDO currently sits at $1.16, down 69% from its 2024 high of $3.78 set on Jan 10.