Lido Proposes LDO Buyback Amid DeFi Liquidity Struggles

Lido Finance proposes a major LDO buyback to address a 95% price drop and limited on-chain liquidity, highlighting a paradox for the leading DeFi protocol.

The move, however, reveals a deeper problem: the limited liquidity of DeFi markets and the difficulty of executing large trades entirely on the blockchain.

The proposal comes against the backdrop of a more than 95% decline in the price of LDO from its 2021 peak. The token currently trades around $0.30 with a market capitalization near $258 million. At the same time, the protocol remains a leader in its segment, controlling approximately 23% of all staked Ethereum.

Limited Liquidity Forces Off-Chain Actions

The core issue is liquidity. According to information regarding LDO’s on-chain liquidity, there is only about $90,000 available within a ±2% price range. This means even a relatively small trade could cause a significant price swing.

Under such conditions, executing larger volumes directly on the Ethereum network becomes practically impossible. Instead, Lido plans to use centralized exchanges like Binance, OKX, and Bybit, as well as market makers, to execute purchases in stages.

This highlights a paradox in DeFi: even the largest protocols in the ecosystem remain dependent on centralized infrastructure when it comes to large-scale liquidity.

The Gap Between Price and Fundamentals

The argument behind the proposal is clear—the price of LDO does not reflect the protocol’s actual health. While the token has lost nearly all its value compared to historical highs, Lido’s core metrics remain relatively stable.

The protocol’s net revenue has decreased by about 20%, costs have been optimized, and the effective fee has increased. In other words, the business model remains functional, but the market has revalued governance tokens as an asset class.

This is also visible in the LDO/ETH ratio, which is currently at a significantly lower value compared to recent years—a signal that investors no longer assign the same value to protocol control if it does not lead to direct cash flows.

The Broader Problem of DeFi Tokens

The Lido case raises a larger question for the entire industry: whether governance tokens will be valued based on protocol fundamentals at all.

Many of these tokens grant voting rights but do not provide direct income for holders. In an environment where investors seek real returns, this makes them less attractive compared to traditional assets or even other crypto instruments.

The proposed buyback could remove approximately 8% of the circulating LDO supply, potentially creating short-term price momentum. However, whether this will change the long-term valuation of the token remains an open question.

Perspective: A Test for the Entire Sector

For Lido, this is an attempt to use market weakness as an opportunity. For DeFi as a whole, it is a test of the model’s sustainability.

If even a dominant protocol with billions in total value locked and stable revenues cannot support the price of its token, it calls into question how the market values decentralized finance.

Ultimately, the success of this move will depend not only on the execution of the buyback but on whether investors are ready to rethink the role of governance tokens—moving from speculative tools toward assets based on fundamental value.