Lido Finance closes $73 million in funding, what does Paradigm see in it?

The round was led by Paradigm, with other followers including Coinbase Ventures, Three Arrows Capital, Alameda Research, Digital Currency Group and other headline blockchain industry investors.

On May 6, Lido Finance, an Ether 2.0 pledge protocol, announced the completion of a new $73 million round of funding led by Paradigm, which purchased $51 million worth of LDO tokens for 15,120 ETH, while the remaining $22 million came from Coinbase Ventures , Three Arrows Capital, Alameda Research, Digital Currency Group and other headline investment firms in the industry, and this portion of the tokens sold represents only 10% of the total LDO supply.

Lido Finance closes  million in funding, what does Paradigm see in it?

This article attempts to break down the background of this funding round and what it means.

The Crypto Bull Narrative Switch: From “Sound money” to “ultra sound money”

Over a year ago, the entire crypto asset market was focused on the “third halving” of bitcoin, which in retrospect brought tremendous traction to the narrative (or story) of bitcoin’s “digital gold”, and as global central banks continued to release water, bitcoin attracted a lot of institutional money from around the world, with old and new tech and financial giants like Paypal, Goldman Sachs, and Tesla pouring money into bitcoin, which laid the foundation for this epic crypto bull market.

As the “one year anniversary of the halving” approaches, it is safe to say that this narrative may be nearing the end of its impact.

However, the whole crypto asset market will not stop here. In the past six months, we have witnessed the hype of DeFi, NFT, DAO, CeDeFi, Layer 2 and other concepts, we have seen UNI break into the Top 10 of the crypto market, and we have also seen the gradual prosperity of BSC ecology, Boka ecology, Solana and other ecologies.

However, all these various concepts boil down to one project, which is Ether.

Because DeFi, NFT, DAO and other concept projects have made some achievements on Ether, which makes Ether more and more congested, and the transaction fees are also rising, which causes the user experience to become very bad, and the user demand for the expansion of Ether is very urgent, but unfortunately, the expansion of Ether 2.0 slice is far away, and the Rollup expansion solution, which is highly expected, is also in the primary stage This presents a great opportunity for competing chains to rise.

Since the beginning of this year, both Layer 1 alternative networks like Boka, Solana, Cosmos, Polygon (formerly MATIC), and CeDeFi chains like Coin Smart Chain (BSC) and Firecoin Eco Chain (HECO), which rely on exchange resources, have gained a large number of users due to the congestion of Ether, and in the second half of the year, with zksync 2.0, Optimism and other highly-anticipated Ether Layer 2 projects, the expansion battle is expected to reach a climax stage.

For users, scaling is just one of the problems faced by public chains such as ethereum.

If we follow the recent focus of the crypto community, we will realize that Miner Extractable Value (MEV), EIP 1559 and the merger of Ether 1.0 and 2.0 (which represents the complete switch from PoW to PoS in Ether) have become increasingly important topics of discussion.

The combination of EIP 1559 and Ether switch PoS means that Ether will have “less newly minted ETH than destroyed ETH”, which means that Ether will usher in a deflationary era, which is also the origin of the “ultra sound money” proposed by Justin Drake and other Ether community members.

Lido Finance closes  million in funding, what does Paradigm see in it?

If the first half of the crypto bull market was driven by Bitcoin, then it is clear that Ether is the source of power for the second half of the bull market.

Miner Extractable Value (MEV) and Ether Switch PoS

Putting aside the topic of EIP 1559, let’s briefly talk about MEV and the Ether switch PoS.

The so-called Miner Extractable Value (MEV) is the value created by the transaction sorting, whether it is front-running, back-running or sandwich trading, all belong to the rules of using Ether, and this is a problem that public chains such as Ether cannot avoid.

In this field, there are mainly three types of projects, one is Keeperdao, which tries to redistribute MEV, and the other is ArcherDAO, which serves miners, and these two projects have their own tokens, which we can understand as MEV tokens.

Lido Finance closes  million in funding, what does Paradigm see in it?

In the last category, there is Flashbot which does not issue tokens.

In terms of current MEV market share, it is clear that Flashbot has dominated, and its biggest backer is Paradigm (note: Paradigm is also the biggest backer of Uniswap).

Flashbot does not issue tokens, so where exactly does its imagination come from? This is related to the switch from Ether to PoS.

With the completion of the merger of Ether 1.0 and 2.0, the power to sort transactions on that network will switch from the hands of PoW miners to PoS miners.

It is clear then that Paradigm needs to bet on an Ether PoS pledged head project to complement Flashbot.

And Lido Finance is the one chosen by Paradigm.

Lido Finance closes  million in funding, what does Paradigm see in it?

In the article “Staking Pools and Staking Derivatives”, co-authored by Georgios Konstantopoulos and Hasu, Paradigm explains a few reasons why Lido was able to stand out.

The greater social scalability of decentralized pledge pools.

the pledged derivatives of decentralized pledge pools are trust-free

decentralized pledge pools have fewer restrictions on MEV withdrawals.

And this last point points to the advantages of the combination Flashbot + Lido Finance, which could allow decentralized pledge pools to outperform pledge returns from centralized exchanges and eventually dominate this market.

The Staking mining market will be a huge market worth tens, if not hundreds, of billions of dollars after the full shift to PoS in Ether.

It is worth mentioning that Lido Finance and Uniswap V3 will likewise create a very strong synergy.

It is foreseeable that Paradigm’s three trump cards will create a very powerful chemistry, and Lido is the last piece of the puzzle.

Addendum: For an analysis of the value of Lido, please refer to this post https://twitter.com/FloodCapital/status/1387918435766751234

Lido Finance closes  million in funding, what does Paradigm see in it?

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