The Largest DeFi Protocol in the World Is Buying Back Its Own Tokens
Lido, the largest liquid staking protocol in the Ethereum ecosystem, has approved an unprecedented proposal: to spend up to 10,000 stETH (approximately $20 million) from its treasury to buy back LDO tokens on the open market. The decision comes after the protocol’s governance token suffered a devastating 95% drop from its all-time high of $7.30 in 2021, reaching a historic low of $0.27 on March 7, 2026.
The proposal marks the first time a major DAO has adopted a structured buyback program to support the price of its governance token, setting a precedent that could influence the entire DeFi industry.
Why Did LDO Drop 95% If the Protocol Is Performing Well?
This is the central paradox of the story. Lido remains the dominant protocol in Ethereum liquid staking, processing billions of dollars in deposits and generating consistent revenue for the DAO’s treasury. stETH, the liquid staking token issued by Lido, is one of the most widely used assets across the DeFi ecosystem, serving as collateral in lending protocols, liquidity pools, and yield farming strategies.
However, the governance token LDO does not directly capture this revenue. It functions as a voting instrument within the DAO, without any dividend distribution mechanism or automatic burn tied to the protocol’s performance. This disconnect between strong operational fundamentals and token price is a structural issue affecting nearly all governance tokens in DeFi.
As a result, LDO is trading at around $0.30, with a market cap of only $258 million. The LDO/ETH ratio is approximately 0.00016, representing a 70% discount compared to the median of the last two years. The proposal argues that this undervaluation is extreme and unjustified given the fundamentals.
How the Buyback Will Work
The buyback mechanism has been carefully designed to avoid market distortions. Since LDO’s on-chain liquidity is limited, purchasing $20 million at once on DEXs would cause a disproportionate price impact. Therefore, the operation will be executed gradually and in a controlled manner:
- Batch execution: The 10,000 stETH will be divided into batches of 1,000 stETH (approximately $2 million each). Each batch requires separate approval through the Easy Track governance mechanism, a simplified DAO system for routine operations that includes a three-day objection period.
- CeFi routing: Instead of executing purchases exclusively on DEXs, the batches will be routed through centralized exchanges and market makers. This approach allows access to deeper liquidity pools and minimizes price impact per trade.
- Slippage control: Maximum slippage is capped at 3% below the reference price, ensuring the DAO does not overpay during execution.
- Supply impact: At current prices, the $20 million could remove approximately 8% of the total circulating supply of LDO, a significant reduction that should, in theory, push the price upward as available supply decreases.
What Is Liquid Staking and Why Lido Matters
For those unfamiliar, liquid staking solves a fundamental problem in Ethereum. When a user stakes ETH directly on the network, the tokens are locked and cannot be used elsewhere. Lido solves this by issuing stETH, a token representing staked ETH that can be freely traded, used as collateral, or deployed in other DeFi protocols.
This mechanism has made Lido the largest DeFi protocol by TVL (Total Value Locked), with billions of dollars in ETH deposited. The protocol charges a fee on staking rewards, generating continuous revenue that feeds the DAO treasury. It is this accumulated stETH revenue that will now be partially used for the buyback program.
A Precedent for the Entire DeFi Industry
Lido’s proposal raises a fundamental question that the entire DeFi space will need to address: should governance tokens capture protocol value?
Historically, most DeFi governance tokens have been designed purely as voting instruments, without a direct value accrual mechanism. The result is that highly profitable protocols often have tokens that do not reflect their performance. Uniswap (UNI), Aave (AAVE), and others face similar dynamics to varying degrees.
Lido’s buyback is an attempt to artificially create a value capture mechanism. By using treasury revenue to buy and potentially remove tokens from circulation, the DAO is effectively distributing value to LDO holders indirectly. If successful, the model could inspire other protocols to adopt similar strategies.
On the other hand, critics argue that buybacks are only a temporary fix that does not address the structural issue. If the token has no utility beyond governance, selling pressure will eventually return once the buyback program ends. The definitive solution, they argue, would be to redesign tokenomics to directly link protocol revenue to token value.
The Macro Context Doesn’t Help
LDO’s decline did not happen in isolation. The broader DeFi market is facing a period of valuation compression. With Ethereum down approximately 60% from its peak in August 2025, tokens built on the network face a double pressure: depreciation of the base asset and capital outflows from speculative governance tokens.
The U.S.–Iran war has added further pressure, with geopolitical tensions pushing investors toward safer assets like gold and U.S. Treasury bonds. Bitcoin ETFs recorded $3.8 billion in outflows in February, and smaller-cap tokens like LDO suffered even more from reduced liquidity.
In this context, Lido’s $20 million buyback may not be enough to reverse LDO’s price trend in the short term. However, it signals something important: the DAO is willing to use its resources to defend the token’s value—and it has the treasury to do so. For DeFi investors, this is a meaningful signal.
What to Watch Going Forward
The next steps will be crucial in evaluating the real impact of the buyback:
- Batch execution: Each 1,000 stETH batch will go through Easy Track with a 3-day objection period. The speed and consistency of execution will indicate the DAO’s commitment.
- Price impact: If the buyback sustains LDO above $0.30 and gradually pushes it upward, the market may interpret this as a bottom signal. If the price continues to fall despite buybacks, the program’s effectiveness will be questioned.
- Contagion effect: Other DeFi protocols with strong treasuries and undervalued tokens (such as Aave, Compound, Curve) may follow suit if Lido’s buyback proves successful.
- Tokenomics redesign: The buyback may be the first step toward a broader restructuring of LDO’s tokenomics, potentially including revenue-sharing mechanisms or burns tied to protocol income.
Ultimately, Lido’s case is a test of DeFi’s core thesis: can decentralized protocols make sophisticated financial decisions through collective governance? The coming months will provide the answer.