Decentralized finance (DeFi) protocol Lido Finance is considering ending its liquid staking service on the Polkadot and Kusama ecosystems.

According to a proposal posted on Lido’s governance forum, Lido’s partner development firm MixBytes announced that it would cease development and technical support for Lido on Polkadot and Kusama liquid staking protocols starting Aug. 1, 2023.

Kosta Zherebtsov, MixBytes’ chief product officer, cited several challenges as the reasons behind the decision, including limited capacity, market conditions, protocol growth, and priority alignment.

Lido has become the DeFi world’s largest protocol, with approximately $9 billion worth of digital assets locked on its platform. The proposal would impact roughly $25 million of assets.

Data aggregator DefiLlama shows that investors have staked $22.3 million worth of Polkadot’s DOT and $2.34 million of Kusama’s KSM on Lido. 

Zherebtsov proposed stopping the acceptance of new DOT and KSM for liquid staking by March 15, with automatic unstaking of tokens later in June, according to his proposed timeline.

LDO drops amid speculation of SEC Wells notice

LDO, the governance token of Lido Finance, has recently experienced a sharp drop, with a 6% decrease in the past 24 hours and about 19% in the past week, according to data from CoinMarketCap.

Lido proposes ending Liquid Staking on Polkadot and Kusama - 1
LDO’s price movement over the week | Source: CoinMarketCap

One possible reason for the drop is speculation that Lido and other crypto projects have received a Wells notice from the United States Securities and Exchange Commission (SEC). Bankless’ David Hoffman first reported the news, although he later retracted it, and the development has not yet received official confirmation.

Lido to enable ETH withdrawals

The price drop is still surprising, given that liquid staking has become extremely popular over the past year, replacing DeFi lending as the second-largest sector in the DeFi space.

Liquid staking is a yield-earning strategy in which crypto holders lock up and delegate their tokens to secure proof-of-stake blockchains in exchange for rewards. Investors can also keep their capital liquid and use their staked tokens as collateral by receiving derivatives.

Lido is the most popular of these liquid staking protocols.

The protocol is also set to allow ethereum withdrawals soon. Obviously, this feature will not be accessible until Ethereum releases the Shanghai upgrade.

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