Lido DAO refuses Dragonfly's token sale

Lido rejected Dragonfly Capital's bid with support from an unnamed whale.

Lido's leadership proposed selling 10M LDO to Dragonfly Capital for $1.45 per token stablecoins. LDO, the protocol's governance token, was trading at $1.60 in New York on Sunday night.

But LDO holders opposed Lido's arrangement with Dragonfly. Skeptical LDO holders said the purchase handed Dragonfly "free money" and accused an unnamed high-roller of hijacking the vote.

Another LDO holder entered the mix over the weekend, killing the offer. A revised proposal is forthcoming.

Diversification

Lido and other liquid staking protocols let users to stake ETH and access locked liquidity via 1:1 derivative tokens. Lido's stETH can be utilized to earn yield in the crypto economy.

Lido DAO's treasury is mostly LDO, ETH, and stETH. One community member's napkin math suggests a reduction in token value might bankrupt the organization within a year at present expenditure rates.

Proponents of the sale say swapping some of LDO's treasury for DAI, a stablecoin pegged 1:1 to the U.S. dollar, would give the organization enough runway to continue paying its 75 staff through a months- or years-long decline in Ether's price.

"Not selling ETH for USD [last year] was avoidable. Cobie, the protocol's founder, said Lido should've sold ETH to USD gradually when ETH was higher. "Now they must sell LDO to fix their mistake. They should recruit a strong CFO to avoid future blunders.

On July 18, the deal was announced, LDO was about $0.97. Lido's head of business development claimed Dragonfly's offer would "cushion" selling pressure. LinkedIn message to Blish went unanswered.

As merger nears, LDO soars

Outside forces compounded matters. LDO's price has risen alongside Ether in anticipation of Ethereum's fall move to the less energy-intensive proof-of-stake architecture.

The Defiant's recently launched graphing tool shows LDO trading at $1.60, greater than the price Dragonfly agreed to pay. Some governance forum participants suggested selling LDO.

Locking Up

Another part of the deal is questionable.

The tokens Lido will sell would not have a lockup period, which worries cautious LDO holders who feel Dragonfly might sell the soaring token at the earliest convenient opportunity, boosting selling pressure to an already depressed market.

Unanimous opposition to no lockup.

"Selling at these prices without unlock is giving VCs free money," remarked YameteOniichan9". Being careful in a down market and not backing anything without vesting seems smart."

Cobie concurred.

"No token lockup makes no sense," he wrote. If people/funds/entities/VCs want to acquire LDO directly from Lido, at spot, with best-possible execution price (likely 10-20% cheaper than they'd be able to execute otherwise), they must support Lido for at least one year.

Dragonfly GP Ashwin Ramachandran explained.

The entity used to buy LDO tokens from the DAO has liquidity constraints. We can't invest in illiquid token deals, hence this deal has no lockup.

Observers continued to advocate for a forum lockdown despite the dispute. Dragonfly declined to comment.

Voting

Blish gave LDO holders three voting options: proceed with the deal, proceed with a one-year lockup, or terminate the agreement.

Voters overwhelmingly rejected the deal. An anonymous wallet holding 15M LDO chose to proceed with the deal without a lockup, drawing cries from the community.

Alex Svanevik, CEO of crypto analytics firm Nansen, said Alameda Research supplied the whale with LDO coins. Alameda CEO Sam Trabucco could not respond immediately Saturday.

It may be irrelevant.

Nansen's wallet tracker shows a wallet holding 17M LDO voted against the proposal.

Monday at 3 p.m. New York time, two-thirds of voters chose this choice.

Blish will open another vote after community comments on a modified plan.

Friday, Ramachandran changed his mind about Dragonfly's $1.45 per LDO acquisition price. Dragonfly would acquire it at that price or the "7-day backward looking [two week average price] + 5% premium" – whichever was higher.

Will LDO holders approve his amended proposal? Monday's forum debate was limited, and it was unclear when a revised proposal would be voted on.