An interesting development in the blockchain realm, Ethereum liquid staking providers have agreed on a 22% cap of all validators. Several prominent service providers, such as Rocket Pool, StakeWise, Stader Labs and Diva Staking, have committed or plan to commit to this self-limit policy. But why? This move, it appears, serves to ensure that the Ethereum network retains its decentralized character.
Some within the Ethereum community have voiced concerns about staking becoming centralized. Therefore, having a hard limit of 22% on any single organization’s ownership attempts to mitigate this risk. If 66% of Ethereum validators must agree on the chain’s state, limiting a single entity’s share to less than 22% means at least four major entities would need to collaborate to finalize the chain. Finality, in blockchain parlance, signifies the point where transactions become irrevocable, providing insurance against alteration.
This limit was first proposed by Ethereum core developer Superphiz back in May 2022. He theorizes that a staking pool should prioritize network health over profits. The concept behind this limitation isn’t without controversy, however. Its biggest critic, Lido Finance, the largest Ethereum liquid staking provider, opposes the self-limit, with an overwhelming majority of its voting stakeholders rejecting the proposal. Factually, Lido hogs the lion’s share of the Ethereum staking market, with a whopping 32.4% stake. But is Lido’s position as market leader self-centered?
Reactions from the Ethereum community have been varied. Some believe that the self-limit proposal doesn’t really align with Ethereum’s principle of enabling credible neutrality and permissionless innovation. An industry expert, ‘Mippo,’ argues that if roles were reversed, those advocating for the proposal wouldn’t be so keen on it. “Everyone is doing the economically selfish and rational thing here,” Mippo comments, indirectly endorsing Lido’s refusal to surrender its dominant market share. Yet, others resonate with the potential centralization issues and condemn Lido’s market dominance as “disgusting and selfish.”
It seems this squabble exemplifies the inherent schism between striving for decentralization and the pursuit of market dominance. A tug of war between the ethos of equal distribution and the business inclination towards monopolizing resources, the discourse around this 22% limit ultimately reflects a larger debate about governance and power distribution within the blockchain landscape. Going forward, how this narrative unfolds will have significant implications for Ethereum and the broader ecosystem’s future.
Source: Cointelegraph
