Crypto Daily: Ethereum Staking Providers Commit to Self-Imposed Limit

A group of Ethereum staking providers has agreed to a self-imposed limit, pledging never to control more than 22% of all staked Ether (ETH). This decision aims to mitigate concerns about centralization within the Ethereum network.

Providers that have committed, or are in the process of committing, to this self-limit include Rocket Pool, StakeWise, Stader Labs, Diva Staking, and Puffer Finance. This information comes from Ethereum core developer Superphiz, with additional statistics and vote configurations available on Snapshot.

Addressing Centralization Fears

The initiative seeks to address worries that Ethereum staking could become too centralized, which could undermine the decentralized nature of blockchain technology. The 22% threshold is strategically chosen. Superphiz, who proposed the idea in May 2022, explained that since 66% of validators must reach consensus for Ethereum’s blockchain to achieve finality, setting a 22% limit ensures that at least four major entities would need to collude to influence the blockchain’s state. Finality is the point where transactions become irreversible, solidifying the block’s contents.

Lido Finance’s Stance

Despite this collective move, Lido Finance, the largest Ethereum liquid staking provider, has decided against any self-limitation. Lido controls 32.4% of all staked Ether, significantly outpacing its nearest competitor, Coinbase (NASDAQ:COIN), which holds an 8.7% market share. This substantial stake has raised concerns about the potential for excessive influence over the Ethereum network.

Community Reactions

Reactions within the Ethereum community are divided. Critics, like Mippo from Blockworks, argue that Lido’s decision goes against Ethereum’s principles of credible neutrality and permissionless innovation. On the other hand, some believe that the providers who agreed to the self-limit are motivated by their current smaller market shares and might not impose such limits if they were in Lido’s dominant position.

The Broader Implications

This voluntary 22% limitation by some Ethereum staking pools represents an effort to maintain the network’s decentralization. However, it also raises questions about whether the decision is driven by the providers’ current standings in the market. As the Ethereum ecosystem continues to evolve, the balance between decentralization and market dynamics remains a critical topic of discussion.

Investment Considerations

Disclaimer: This article is provided for informational purposes only and is not intended to be used as legal, tax, investment, financial, or other advice.

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