DAO governance often raises one core question:

Who should hold voting power?

In most DAOs, the answer is simple: governance token holders.

But Lido's Dual Governance model changes this old rule. Now stETH holders can also block a controversial DAO decision, delay it, and exit the protocol if needed.

This article focuses on three questions:

1. What benefit does Dual Governance give to users?

2. What harm can it cause to users?

3. Why have other projects not adopted this model yet?

Dual Governance is a smart contract based security model. In this model, LDO holders vote on governance proposals, but stETH holders get a separate right: they can perform Veto Signalling against controversial proposals.

In simple terms:

LDO holders say: We want to pass this proposal.
stETH holders can say: Wait, first give us time to review and exit if needed.

On September 27, 2026, Dual Governance V1 was deployed on Ethereum mainnet. Now on chain actions go through a dynamic timelock instead of a standard timelock, where stETH holder opposition can increase execution delay.

In most DAOs, users have the right to use the token, but not governance control.

In Lido, a stETH holder has staked ETH. Their funds are affected by protocol validator operations, withdrawal systems, and governance decisions. Earlier, they could not directly participate in LDO governance votes.

Dual Governance reduces this gap.

Now stETH holders can perform Veto Signalling to block a proposal. If more than 1 percent of total stETH supply is deposited in escrow, proposal delay increases. If this opposition reaches 10 percent, the Rage Quit mechanism can stop pending governance execution.lido+1

The risk of a governance proposal is not always clear immediately. Sometimes a proposal is written in technical language, but behind it validator rules, treasury control, withdrawal processes, or admin permissions can change.

Dual Governance gives users time:

• Time to understand the proposal

• Time for community discussion

• Time to request a security review

• Time to ask the team for answers

• Time to exit the protocol if trust is broken

In Lido, the minimum delay is at least 3 days. When Veto Signalling occurs, delay can increase from 5 days to 45 days.

The biggest weakness of token based governance is that voting power can be bought.

If a person or fund buys enough governance tokens, they can try to pass a proposal. Academic research also shows that tradable token voting can create governance takeover risks and proposals driven by private interests.

Dual Governance does not completely remove this attack, but it can reduce its impact.

Because passing a proposal and immediately executing it are no longer the same thing. stETH holder opposition can delay execution. This extra time gives the community, security researchers, and large depositors a chance to respond.blockworks+1

LDO holders can set the long term direction of governance. But stETH holders have economic exposure in the protocol.

Their interests can often be similar, but not always.

For example:

• An LDO holder may prioritize short term token value or treasury strategy

• A stETH holder may prioritize capital safety, withdrawal certainty, and staking reward stability

Dual Governance recognizes that both roles are different. So it creates a kind of constitutional balance.

The biggest practical question of Dual Governance is who will reach the 1 percent or 10 percent stETH supply threshold for escrow.

A small user cannot trigger Veto Signalling alone. They will need coordinated community action.

This means that while the model technically gives user protection, practical power may still go to large holders, institutions, liquid staking platforms, delegates, or organized groups.

In the old model, whale LDO holders were influential.

In the new model, whale stETH holders can also become influential.

Not every delay is safety. Sometimes a protocol needs to make decisions quickly.

For example:

• Severe smart contract vulnerability

• Oracle failure

• Validator incident

• Bridge risk

• Regulatory restriction

• Critical liquidity issue

If a large veto campaign starts on every controversial proposal, DAO operational speed can drop.

Lido has linked Dual Governance with emergency governance design for this reason. Emergency delay has been extended to 14 days, so that misuse of emergency powers is reduced and stakeholders get time to respond.

Still, there is a difficult trade off here:

Fast governance increases the risk of wrong decisions.

Slow governance increases emergency response risk.

If large stETH holders are not happy with a change for economic reasons, they can create veto pressure even without a security risk.

For example, a proposal may be right for the protocol in the long term, but it can affect the short term rewards or business model of some large holders.

They can use Veto Signalling not for security, but as negotiation leverage.

This can create a situation in the DAO:

The proposal is technically safe, but powerful stakeholders are blocking it because it reduces their profit.

For Veto Signalling, stETH, wrapped stETH, or withdrawal NFTs must be deposited in escrow.

During this time, user liquidity flexibility can decrease. They may not be able to use the asset freely, sell it, use it as collateral, or deploy it in DeFi strategies.

For large institutional holders, this cost may be manageable. But for small users, locking assets can become a meaningful economic cost.

As of September 2026, Lido's Dual Governance is the most prominent live example. Many DAOs use hybrid governance, Snapshot voting, delegates, security councils, and timelocks, but a staker driven dynamic veto and Rage Quit model like Lido's has not yet become a general industry standard.

There are some clear reasons behind this.

In Lido, the distinction is clear:

• LDO holders are governance token holders

• stETH holders are staking users

But in many DAOs, this separation is not so clear.

For example:

• In Uniswap, LPs, UNI holders, traders, and liquidity users are different groups

• In lending protocols, lenders, borrowers, liquidators, and governance holders are different

• In DEXs, traders and LPs have different risk profiles

• In stablecoin protocols, collateral providers, stablecoin holders, and governance holders are different

Now the question is: who gets veto rights?

If only liquidity providers get it, what about borrowers?

If stablecoin holders get it, what about collateral providers?

If everyone gets it, the voting system can become very complex.

Lido's model is clear because stETH holders are a relatively defined economic class. In other protocols, such clean separation often does not exist.

Lido's system is not just a voting interface. It includes custom dynamic timelock, escrow contracts, withdrawal handling, execution restrictions, and Rage Quit logic.blockworks+1

This increases complexity.

Every new smart contract layer creates a new risk surface. A DAO needs:

• Multiple smart contract audits

• Formal verification where possible

• Clear upgrade rules

• Emergency response design

• Escrow accounting accuracy

• Withdrawal queue compatibility

• Front end clarity

• User education

A DAO creates a new mechanism to avoid governance attacks, but if that mechanism is poorly designed, it can become a new attack surface.

This is the most political reason.

Governance token holders already have proposal, vote, and execution influence. Dual Governance does not completely remove them, but it puts restraint on their power to execute decisions.

Not every governance token holder will accept such a change.

Many token holders may ask:

• We bought governance tokens, so why should the final decision lie with another asset holder?

• Will this reduce the utility of the governance token?

• Will veto risk harm token value and DAO agility?

• Will large depositors indirectly control the DAO?

Lido accepted this challenge because stETH user protection is very important for protocol legitimacy. In other DAOs, token holders may still consider single token governance more simple and profitable.

Academic studies and DAO research consistently show that voter participation, concentration, and plutocracy are serious problems in token based governance.

Now think: if a DAO cannot increase participation in its existing governance system, how will it manage a second electorate?

Dual Governance requires user education. Users need to understand:

• When to use veto

• How escrow works

• How to read proposal risk

• The difference between false alarm and real danger

• How to organize collective action

If there is no user participation, the protection right will exist on paper, but will not work at the time of activation.

Before adopting Dual Governance, every DAO should openly discuss these weaknesses.

Not for every DAO.

But for high value, user fund based, and governance sensitive protocols, this or a similar model may become necessary.

Especially in these categories:

• Liquid staking protocols

• Restaking protocols

• Lending markets

• Stablecoin systems

• Cross chain bridges

• Large treasury DAOs

• DeFi protocols with admin keys or upgrade powers

The reason is simple. As protocol TVL, users, and institutional capital grow, relying only on token holder votes will become difficult.

In a large protocol, the harm from a wrong governance decision does not only affect LDO, UNI, AAVE, or any governance token holder. It also harms users whose actual capital is deposited in the protocol.

Therefore, a new governance standard may emerge in the future:

• Token holders set strategy and operations

• Security council handles immediate risk

• Timelock gives community review time

• Affected users get delay or exit rights

• Higher safeguards for treasury transfers

• Emergency power is limited and auditable

This may not be exactly Dual Governance. But the need to move beyond single token governance will increase.

Calling Dual Governance the final solution for DAOs would be premature.

But calling it the next direction of DAO governance is reasonable.

Its biggest contribution is that it asks a difficult question:

Should only governance token holders have the right to decide for users whose capital is most at risk in the protocol?

Lido's answer is no.

It has said that affected stakers should get at least three rights:

• The right to show opposition

• The right to delay decisions

• The right to exit when trust is broken

In the future, DAOs should not copy Lido's exact model. They should build their own hybrid governance framework based on their protocol's users, risks, tokenomics, and emergency needs.

But one thing is clear.

Just having decentralized voting power is not enough.

If user funds are at risk, user protection must also be decentralized and enforceable.

1. Lido Governance official page (dual governance overview)

2. Lido Docs: Guide to Dual Governance

3. Lido Blog: Dual Governance 101 Explainer

4. Lido Blog: Participating in Dual Governance

5. Lido GitHub: Dual Governance mechanism documentation

6. Research Lido: LIP 28 Dual Governance proposal

7. TradingView: Lido DAO Dual Governance Votes June 2025

8. HTX News: Lido Vote 214 passes, Dual Governance on Ethereum

9. Blockworks: Lido gears up for Dual Governance

10. ChainScore Labs: Lido Dual Governance risk analysis

11. ScienceDirect: A review of DAO governance (2025)

12. ACM: DAO Governance Voting Power, Participation, and Controversy (2026)

13. Frontiers in Blockchain: Decentralizing governance (2025)

14. ECGI: A Review of DAO Governance (2025 PDF)

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