The risks of LSD

Liquid staking derivatives such as Lido pose inherent risks to Ethereum and pooled capital once they exceed consensus thresholds, and the author recommends that capital allocators avoid LSD protocols above 25% of total staked Ether. The article argues that a pool past 1/3, 1/2, or 2/3 of stake can earn outsized profits through coordinated MEV extraction, block-timing manipulation, or censorship, creating a cartel. It says this holds whether Node Operators are chosen by governance, where the governance token could become a regulatory target, or by automated profitability rules, which would push honest operators out. The article also argues that risks to the protocol and to pooled capital are tied together, and recommends that Lido and similar products self-limit.