Ethereum Staking Gets More Decentralized as Lido’s Dominance Drops Amid Rising Competition
Summary:
The market share of liquid staking provider Lido dipped from 32% in December 2023 to 29.57% due to new Ethereum stakers, mitigating fears about Lido's increasing dominance in the ecosystem. Other significant entities contributing to the ETH staking ecosystem include crypto exchanges Coinbase and Binance, and Ethereum staking platform Kiln. Amid growing competition in the ETH staking arena, a recently proposed hard cap on ETH staking by the Lido DAO community was rejected. Furthermore, a recent Coinbase report highlights potential risks with Ethereum re-staking and issuance of liquid restaking tokens (LRTs).
The latest surge in Ethereum stakers has lessened the market dominance of liquid staking provider Lido from 32% in December 2023 to 29.57%, easining concerns about Lido's growing sway in the ecosystem. Lido’s dominance in Ether (ETH) staking, due to limited competition, gave them a significant chunk of the ETH staking market. The community was alarmed that any group holding more than 33% of the market might have the ability to manipulate the Ethereum chain in various ways. Current data dated April 4 from crypto data analysis platform Dune demonstrates that Lido's share of staked ETH has dropped below 30%.
Contributors to the ETH staking ecosystem include major crypto exchanges Coinbase with 14.04% share and Binance at 3.75%, as well as Ethereum staking platform Kiln at 3.5%. However, the second biggest contributor in ETH staking is labelled as “unidentified” and it accounts for 16.9% of the market share.
A total of 26 known groups participate in ETH staking, including crypto exchanges Kraken (2.4%), Bitcoin Suisse (1.6%), OKX (1.2%) and Upbit (1.1%). As per Ethereum's co-founder Vitalik Buterin, no stake pool should possess more than 15% control and they should opt to “keep increasing the fee rate until it falls below 15%”.
The Lido DAO community had previously attempted to address the problem of ETH staking dominance by proposing a strict limit in May 2022, but it was turned down by the DAO with a 99.81% vote against it in June 2022.
It is anticipated that as competition increases among ETH staking service providers, this will help to further distribute the staking ecosystem.
A recent Coinbase report flagged several potential risks related to Ethereum re-staking and the issuance of liquid restaking tokens (LRTs). The report used Eigenlayer, an Ethereum re-staking protocol, as an example, stating that while re-staking can boost earnings, it can also magnify risks as it allocates the same funds to similar validators for a higher yield. Thus, LRTs may be urged to maximise their returns in order to increase market share, but this could result in a higher, albeit concealed, risk profile.
Published At
4/4/2024 9:55:56 AM
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