Mechanics
How does Lido Finance work?
Lido Finance turns a 32 ETH, always-online validator into a token you can hold in any wallet. You deposit ETH, the protocol stakes it through professional node operators, and you receive stETH — a receipt token whose balance grows daily as rewards arrive. Below is the full path your ETH takes, and what the protocol does at each step.
1.You deposit ETH
You send ETH of any size to the Lido Finance staking contract. There is no 32 ETH threshold, no hardware to run and no key management: the pool aggregates deposits until it has whole validator amounts. In return you immediately receive stETH, one token for each ETH deposited.
2.The pool assigns stake to node operators
Pooled ETH is distributed across a curated set of professional node operators who run the validators. Validator withdrawal credentials point back at the protocol, not at any operator, so an operator can go offline or misbehave but cannot walk away with the stake.
3.Validators earn consensus and execution rewards
Each validator earns for attesting and proposing blocks, plus execution-layer tips and MEV. Those flows are collected daily at protocol level rather than trickling to individual depositors.
4.A fee is taken, the rest is distributed
A protocol fee is deducted and split between node operators and the DAO treasury; the remainder belongs to depositors. This fee is the difference between the raw network yield and the APR you actually see.
5.stETH rebases daily
Instead of paying rewards as a separate token, the stETH balance in your wallet increases roughly once per day. Hold 10 stETH and you will simply see a slightly larger number tomorrow — that is the reward, and no claim transaction is needed.
6.You exit through the queue or the market
Request a withdrawal and the protocol either serves it from incoming deposits or exits a validator, which is rate-limited by Ethereum itself. Or sell stETH on the open market for instant liquidity at whatever price is on offer.
Where the yield actually comes from
None of the reward is created by Lido Finance itself. Ethereum pays validators for securing the chain, and users pay priority fees to get transactions included. The protocol is a routing and accounting layer on top of that: it aggregates deposits, assigns them to operators, collects the network's payments and redistributes them minus a fee. If you want the arithmetic behind the headline number, the staking rewards guide unpacks how APR is derived, and the rewards calculator lets you run your own numbers.
Why wstETH exists
Rebasing is elegant in a wallet and awkward in a smart contract: many DeFi protocols record a fixed balance and would strand your reward growth. wstETH solves that by wrapping stETH into a token whose balance never changes while its exchange rate against ETH climbs. Same underlying stake, different accounting — see wstETH vs stETH for which one to hold in which situation.
What can go wrong
The mechanics above assume every component behaves. In practice contracts can carry bugs, operators can be slashed, governance can change parameters and the market price of stETH can drift from its redemption value during a rush for the exit. Those risks are covered in detail in is Lido Finance safe. This site is independent and not affiliated with Lido Finance.