The rise of staking on the Ethereum network, propelled by significant network upgrades, Merge and Shanghai, seems to have inadvertently led to increased centralization and diminished staking yields, as noted by a recent JPMorgan report.
The main essence of the article deals with the observation that Ethereum’s staking growth has resulted in higher centralization. This trend appears to have led to significant advantages for a few staking providers, with five main entities, including Lido, Coinbase, Figment, Binance and Kraken – controlling more than half of all staking activities on the Ethereum network. JPMorgan analysts have noted that Lido alone accounts for about one-third of this.
This rise of centralized staking platforms poses potential risks for the network – a concentrated group of providers or node operators acting as a single point of failure, or becoming an easy target for attacks. Furthermore, these entities could potentially conspire to create an oligopoly.
The analysts argue that not only is centralization an issue, the post-Merge Ethereum is also associated with an overall decline in staking yield. In fact, they mention a substantial reduction in staking yield from 7.3%, pre-Shanghai upgrade, to around 5.5% currently.
While some view decentralized liquid staking platform Lido as a better alternative to centralized staking platforms, in practice, ‘’even decentralized liquid staking platforms involve a high degree of centralization,” warns the JPMorgan report. Further compounding the issue is the fact that a single Lido node operator accounts for more than 7,000 validator sets or 230,000 ETH.
This situation stirs yet another layer of skepticism – how centralized is decision making within platforms branded as decentralized? Certain points within this article touch on a case where Lido’s DAO rejected a proposal to cap the staking share at 22% of Ethereum’s total staking, aiming to curb centralization.
Co-founder of Ethereum, Vitalik Buterin, has previously admitted that centralization is a significant challenge. He projected that finding an optimal solution to curb this problem could take another two decades.
While the growth and adaptation of staking are seen as significant steps for the development of the Ethereum network, this article underscores the need for a critical assessment of these developments. It’s essential to weigh the push for progress and adoption against potential drawbacks that could compromise the very bedrock of these blockchain networks – decentralization and trustlessness.
Source: Cointelegraph
