Gauntlet Additional Update
After reviewing Lido’s stETH withdrawal mechanism, we continue not to recommend any changes specifically to handle the Shanghai upgrade.
The stETH withdrawal mechanism does not allow for locked ETH to be ‘stuck’ in Lido’s contracts, and there will be an avenue to directly redeem stETH to ETH, roughly on the same schedule as the withdrawal queue. Any discount to the 1-1 stETH/ETH redemption rate will result from negative rebasing as the result of Lido validators getting slashed. No Lido validators have been previously slashed.
Withdrawal requests will be fulfilled primarily from the Lido buffer, which gradually accumulates ETH from deposits and rewards. Within the first week following Shanghai, Lido anticipates roughly 200k ETH will become available after partial withdrawals from validators with excess balance (redeeming rewards). The exact use of this buffer will be decided by the Lido community, but it seems likely that the funds will be used for redemptions and to support the stETH/ETH exchange rate on DEXs.
In most cases, if there is enough ETH in the Lido buffer, users will be able to redeem their stETH to ETH within one day. If there is not enough ETH in the buffer, then Lido will trigger sufficient validators to exit and fill the buffer. The expected time for users to redeem will be roughly 3-4 days, as determined by how long it takes for the validators to leave the exit queue.
If massive slashings have occurred, then stETH redemption will be paused for 18 days while negative rebasing accrues over all stETH holders. However, once all associated slashings have been processed, and all associated validators have exited the chain, withdrawals resume. The stETH withdrawal mechanism will prevent ‘griefing’ attacks from clogging up the queue and preventing less sophisticated stakers from redeeming stETH to ETH. Therefore, there will be roughly 18-36 days required in bunker mode to redeem stETH to ETH.
Again, it is worth noting that Lido validators have never been slashed so far. Only 230 validators have ever been slashed (Lido has 150k validators), and therefore the data does not suggest that slashing of Lido validators is likely to happen at a rate that would significantly increase the stETH/ETH discount.
As of now, it is unclear what the redemption paths are for cbETH and rETH.