First Mover Asia: Lido DAO governance token down; Bitcoin rises as Fed rate decision nears

While the DAO has yet to formally see the Lido proposal to allow withdrawals from stETH, Galaxy Digital has already been critical. The Lido governance token has fallen about 15% from its high last week week.

Good morning. Here’s what’s happening:

Prices: Bitcoin and other cryptocurrencies closed a successful January. Will the remainder of the Year of the Rabbit in the lunar zodiac see the momentum continue?

Insights: A Lido DAO proposal faces criticism, even before it's formally presented. Lido's governance token is down. What's next?

BTC/ETH prices per CoinDesk Indices; gold is COMEX spot price. Prices as of about 4 p.m. ET

Bitcoin Finishes January up 40% as Crypto Hops Into the Year of the Rabbit

By Sam Reynolds

Happy February.

Bitcoin is at $23,129, up 1.3% in the last 24 hours while ether is up 1.2% to $1,586.23.

The two largest digital assets wrapped up a monumental January, beating expectations, by posting double-digit gains – Bitcoin by 40% and ether by 32%.

January also proved to be the season of the altcoins with Cardano (ADA) up 56%, Dogecoin (DOGE) up 37%, Solana (SOL) up 140%, and Avalanche (AVAX) up 82%.

While most crypto investors are looking to the stock market and U.S. central bank meeting minutes for guidance, just for a minute we’d like to – for a sense of levity – look to the heavens to see what the stars might tell us.

Most of East Asia has returned to work from celebrating the Lunar New Year. In the Lunar zodiac, 2023 is the year of the rabbit, and legend says this year should be as calm, peaceful and tender as the animal itself.

CLSA, a major brokerage based in Hong Kong, wrote in a note published in January that all macro economic indicators point to this year as being one where the market "hops" around.

“Gentle, quick and responsible, the Rabbit is the fourth animal in the 12-year cycle of the Chinese horoscope. Together with yin water, this combination bodes well for a calmer 2023 compared to last year’s tumultuous experience,” the brokerage wrote, while also reminding investors to seek professional advice before making a decision. “This year’s bazi, or destiny chart, advises us to step out of our comfort zone but remain mindful of perils afoot. After all, a rabbit’s foot is lucky for everyone but the fluffy woodland creature.”

Tiger years, of which 2022 was one, are marked by being competitive and unpredictable – and we all know how this went.

Biggest Gainers

Asset	Ticker	Returns	DACS Sector
Loopring	LRC	+11.4%	Smart Contract Platform
Terra	LUNA	+6.3%	Smart Contract Platform
Dogecoin	DOGE	+4.3%	Currency

Biggest Losers

Asset	Ticker	Returns	DACS Sector
Solana	SOL	−0.3%	Smart Contract Platform

Insights

A Lido DAO Proposal Faces Criticism, Even Before It's Formally Presented. What's Next?

By Sam Reynolds

As Ethereum’s Shanghai fork, which will allow for the withdrawal of staked ether, draws closer, Lido DAO, the entity behind the liquid staking token stETH, is preparing a proposal to allow for withdrawals from stETH. While the proposal hasn’t been formerly put before the DAO for voting, it has found a critic in Galaxy Digital – and its governance token has dropped 15% in the last week despite strong performance from ether.

On the surface, Lido DAO’s proposal for allowing withdrawals from stETH seems routine and follows what’s expected in the Shanghai hard fork. Users will send a withdrawal request to a smart contract called “WithdrawalQueue,” which will reserve the amount of ether required for redemption as well as calculate the redemption rate, then withdrawals will be processed in the order that they are received.

But Galaxy has recently highlighted some issues with the proposal as it stands, that could lead to a few worst-case scenarios.

Within the Ethereum staking economy, slashing is sort of like a sanction against a validator that is accused of breaking the rules. The validator is penalized and either kicked off the Ethereum network or briefly censured. You can think of it as OFAC-by-democracy.

Usually slashing only happens when validators engage in bad technical behavior such as proposing multiple blocks, submitting contradictory votes to proposals, or going offline for an extended period of time. But as CoinDesk columnist Nic Carter highlighted in a recent piece, there was a serious grassroots effort to slash validators like Coinbase that complied with sanctions to deny Tornado Cash transactions. This isn’t good for institutional adoption.

Galaxy notes that Lido could be the target of a mass-slash event, knocking its validators off the network. If this happens, Lido would enter “bunker mode”, where things are delayed up to 36 days for Lido to recalculate the stETH redemption rate and assess damage to the network. Worse, Galaxy writes, there’s the option for a total halt of withdrawals under what Lido calls the “gate seal smart contract."

“There are edge case scenarios that change withdrawal dynamics on Lido and highlight unique risks associated with staking through an intermediary,” Galaxy writes, arguing that there are inherent risks with using an intermediary staking service above and beyond the risks that come from Ethereum.

The success of the entire protocol, says Galaxy, relies entirely on the price performance of stETH and the continued availability of liquidity in the stETH:ETH trading pair.

“In the event that Lido validators are penalized or slashed, reducing the amount of total staked ETH in the protocol, users may receive less ETH for their stETH than what they had originally submitted,” Galaxy writes.

Then there’s also the risk of delays.

“The Lido Withdrawal Queue is an additional queue that operates separately from the withdrawals queue and exit queue enforced by the Etheruem protocol,” Galaxy writes. “Therefore, there may be additional delays that users are subject to when withdrawing their staked ETH due to the procedures set by the staking intermediary.”

To be sure, Galaxy isn’t trying to discourage anyone from using an intermediary like Lido. On-chain data shows that using an intermediary is how the vast majority of staking is done: Lido, Coinbase, Kraken, and Binance control nearly 50% of this market.

It’s just that there is a new layer of risk introduced, and in this market, it's something of which investors need to be more cognizant.

Important events

9:00 a.m. HKT/SGT(1:00 UTC) Eurozone Core Harmonized Index of Consumer Prices (YoY/Jan)

12:15 p.m. HKT/SGT(4:15 UTC) United States ADP Employment Change (Jan)

6:00 p.m. HKT/SGT(10:00 UTC) United States Fed Interest Rate Decision

---