In a recently concluded vote by the Aave community - rewards earned from staking ETH tokens on Lido DAO's platform will now be distributed by Aave on Ethereum, Arbitrum and even Optimism.

The Aave platform currently depends on smart contracts to offer its users decentralized finance (DeFi) services such as lending and borrowing over the blockchain. So, very recently - Aave had launched its version 3 (v3) product that was deployed on the Ethereum mainnet and also on Optimism and Arbitrum - two very popular Ethereum based layer-2 scaling solutions that allows users to transact on Ethereum-based applications faster and with lower transaction cost.

Why is this important?

In that context, back in 2022, Lido DAO had announced that it will reward staked ETH (stETH) liquidity providers on Arbitrum and Optimism with a cumulative 150,000 LDO tokens, Lido DAO's native governance token to attract more users on to its platform and incentivise them to use it.

So now, decentralized finance (DeFi) service provider Aave, which is a platform for decentralized lending and borrowing has taken up the mantle to distribute these rewards across users on the platform. These LDO token rewards will now be distributed across Aave following the vote that ended later on 6 February 2023.

The vote had concluded with a overwhelming support in favor of the proposal - with 99.97% in favor and less than 0.01% against the proposal. A minute fraction of the consensus, of about 0.02% abstained from the vote.

But what is Lido?

Lido is essentially a staking platform that runs primarily on the Ethereum network, but is currently running on a few others like Solana and Terra. It is also currently the largest decentralized finance (DeFi) application in the DeFi industry with a total-value-locked (TVL) of $8.69 billion as of writing this article on 8 February 2023.

Lido is a platform that is run by a decentralized autonomous organisation (DAO) and it is a liquid staking solution for proof-of-stake (PoS) blockchain networks, that works to aggregate note operator partners who run the underlying validator infrastructure and share the rewards on the basis of the contributions.

It was initially launched back in December 2020 alongside the beginning of Ethereum 2.0 vis-à-vis when the PoS based Beacon chain entered Phase 0 (which was recently merged with the Ethereum Mainnet back in 15 September, 2022).

Ethereum's Beacon chain only allowed users with multiples of 32 ETH to stake their tokens to the PoS chain validator contract and earn to validate transactions on the PoS chain. Further, once these staked tokens were locked in the smart contract, they couldn't be withdrawn back to the original ETH.

This is where Lido came to the rescue. To aid smaller retail players to participate in the ecosystem - Lido allowed you to stake any number of ETH tokens through their platform onto the Beacon chain and received an equal number of stETH or staked ETH in exchange. This allowed users to earn rewards through staking on Ethereum 2.0 chain while maintaining liquidity and at the same time reducing the requirement for 32 ETH. Lido since then has become huge, and it currently accounts for nearly three-quarters of the total-value-locked (TVL) in the $11 billion liquidity staking derivatives market.

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However, Ethereum is expected to come out with the Shanghai Upgrade as soon as March 2023 when it may allow existing users who had locked up their ETH tokens into ETH 2.0 smart contract to unlock and withdraw their tokens which had been locked and inaccessible so far.

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