Node operator registry; Beacon chain oracles and stETH token balance update; and Withdrawals (disabled until Ethereum 2.0 transfers are available). To stake ether with Lido, the user sends ether to the smart contract and gets stETH tokens in return. stETH tokens represent a tokenized staking deposit. stETH tokens can be held, traded, or sold. The balance of stETH is based on the total amount of staked ether plus total staking rewards and minus slashing applied on validators. All deposits into Lido are delineated by 32 ETH and assigned to node operators who validates using these deposits. Node operators never have direct access to the users' ether. Funds are deposited to the Lido protocol smart contract and then are locked into the Ethereum

The threshold signature account controlled by the Lido DAO is specified as a staking withdrawal address. Staked ether will be withdrawable only when transfers and smart contracts will be implemented on Ethereum 2.0 (expected in Phase 2). Unlike similar systems, Lido does not require node operators to deposit equal collateral of staking positions. Instead, Lido DAO-chosen node operators should have a track record with assets staking, which will be supplemented with slashing insurance. This approach will allow the system to be more capital-efficient. Lido: Ethereum Liquid Staking, 2020 03 Ethereum 1.0 Node operators ETH1 account ETH ETH User Lido Staking Contracts Ethereum Deposit Contract stETH validation key Beacon Chain withdraw (once available) validation key Validators node Lido DAO threshold signature withdrawal account

Figure 1: Stake Deposit Flow The stETH token balance is based on the amount of ether deposited in Lido with associated total rewards and slashing penalties. Since the beacon chain is a separate network, Lido smart contracts cannot get direct access to its data. Communication between the Ethereum 1.0 part of the system and the beacon network is performed by the Lido DAO appointed oracles. They monitor node operators beacon chain accounts and submit corresponding data to Lidos Ethereum 1.0 smart contracts. On every update submitted by oracle, the system recalculates the stETH token ratio. If the overall staking rewards are greater than the slashing penalties, the system registers a profit. In this case, the stETH token balances will increase and Lido would apply a 10% fee.

The fee is applied by minting stETH tokens corresponding to 10% of Lido's profit. The minted stETH tokens are distributed between the node operators and the DAOs treasury account. Node operators part of the fee is distributed proportionally to the corresponding active validation keys on the beacon chain. Beacon Chain collects data about rewards/slashing All validators accounts All Lidos validators Oracle Ethereum 1.0 submits total ETH balance 10% of net rewards used to mint stETH as a fee Lido Staking Contracts 50% of fee is split between node operators according their share in the total staked value 50% of fee Node operators accounts Lido treasury 90% of rewards accounts for stETH balance increase