Simple On-chain Delegation

This is a signal proposal intended to approve the overall design for Simple On-chain Delegation. If the DAO approves this proposal, the voting dedicated to on-chain changes will take place in April after all audits and security checks pass.

TL;DR

The Simple On-chain Delegation allows LDO token holders to delegate their voting power to other addresses and delegates to participate in on-chain voting on behalf of their delegated voters. Alongside that, it’s proposed to add TRP (Token Rewards Plan) participants the ability to delegate their LDO rewards.

This proposal is intended to address the security and operational hurdles arising from the lack of delegation for on-chain voting. This quick and cost-effective solution involves some simplification of the user experience; however, it is intended to address urgent needs while a more comprehensive solution is worked on.

Motivation

In the current conditions, reaching a quorum in on-chain voting has become highly challenging, and several consecutive votes failed to reach a quorum. The absence of an on-chain delegation is a blocker for stable and sufficient participation in on-chain voting and protocol development.

Projects objective

Three vectors can be directly or indirectly solved through on-chain delegation:

1. Activate the voting power of the voters who are already involved in the governance process and have delegated their voting power on off-chain snapshot.org but have never participated in on-chain voting.
2. Ease the on-chain voting process for those who are already involved in the governance process and participate in on-chain voting but irregularly. There are various reasons for this: limited and complex access to cold wallets given the short 48-hour voting phase or multi-sig as a token holder.
3. Attract those willing to participate in the governance process when Lido DAO determines an open delegation mechanism with a list of delegates.

The project aims to achieve a 20-30M increase in quarterly active voting power participation on-chain within 3 months of its launch (for Q4 2023, the quarterly active VP on on-chain votes accounted for ~90M LDO, and on off-chain snapshot.org ~120M LDO).

Design Requirements and trade-offs

A proper full-fledged delegation mechanism involves maintaining an accounting to track actual delegated voting power at any moment accurately. Implementing this is a complex and time-consuming project.

The current solution is a simplified version that addresses three basic requirements:

1. There is a mapping of token holders’ and delegates’ addresses; the token holder can set a delegate and cancel the delegation, and the delegate can obtain the addresses of all those who have delegated to them.
2. A delegate can vote on behalf of a token holder or a list of token holders.
3. A token holder has an ultimate authority, they can override the delegate’s decision on a vote.

You can dive into the design description of the solution in the specification: LIP-21. Simple On-chain Delegation.

Next steps

Now the solution is undergoing several security audits.

If this vote gets approval from the DAO, the on-chain voting (hopefully the last one without the delegation feature) is planned for April.

The on-chain voting will be held after all audits and security checks successfully pass.