Lido faces skepticism for Arbitrum grant request

Lido hoped to draw Arbitrum grant funding with the allure of bringing its behemoth staked ether product to the layer-2. But so far, the Arbitrum governance community is almost evenly split. 

Five days into voting, Lido’s grant proposal faces an uphill battle, with just 50.2% of votes cast in its favor and 41 proposals earning more yes votes — and therefore passing Lido in the funding tiebreaker. 

At first glance, Lido looks like a promising candidate for Arbitrum incentive funding. The protocol holds almost $14 billion in staked ether, per Token Terminal, and its grant proposal said Lido hopes to make Arbitrum the first layer-2 where users can mint its stETH product natively.

But Lido’s proposal immediately met resistance from DAO members who felt that its roughly $3.5 million grant, fourth-highest among the 97 proposals, wasn’t justified by its importance.

“Simply having a high TVL [total value locked] is not a warrant to take a [lion’s] share of the grant,” one DAO contributor wrote under the proposal. 

Read more: $88M in Arbitrum grant proposals are competing for a $44M pot

Arbitrum DAO’s mixed feelings on Lido also stem from its large share of staked ether. Other DAO contributors expressed centralization concerns with Lido, which currently controls around 32% of all staked ether, expanding its presence on one of Ethereum’s largest layer-2s. 

The proposal’s largest voter deployed their $10.5 million-worth of Arbitrum (ARB) tokens in opposition to Lido, writing: “Can’t create incentives for Lido right now…let’s be real.”

Lido’s Seraphim Czecker told Blockworks in a direct message on X that Arbitrum only stands to gain from the proposal, which he says is likely to bring “mainnet whales” to Arbitrum. But many in the DAO are weighing those potential whales against Lido’s worrisome size.

“As Arbitrum, are we thinking about the security and the decentralization of liquid staking, or are we thinking about growing ourselves where we’re getting more whales, where there’s the minting of staked ETH on Arbitrum? I think that’s the biggest question,” Alex Lumley, product developer at fellow grant applicant Savvy DeFi, said.

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