On Thursday, Andreessen Horowitz announced it was investing $70 million in Lido, a startup that makes money “staking” for blockchain protocols. What’s noteworthy is that Andreessen Horowitz did this deal alone, a sign of its confidence. So we decided to break down the business model.
The situation: Many newer blockchains rely on a process called “staking.” This is when networks use deposited tokens to validate transactions. But what’s in it for users to deposit their tokens? Just like how banks pay interest to people on their deposits, blockchain protocols pay out rewards.
The problem: Token holders can earn higher rewards in ways other than staking. For example, they can turn to cryptocurrency lending or other decentralized finance (DeFi) investing products.