Ethereum’s decentralization might be in danger, considering distribution of staking on network
Decentralization is an extremely sensitive topic for cryptocurrency enthusiasts as it is the backbone of the entire blockchain industry, and it can cause some serious problems if one of the largest ecosystems in the entire market is not properly decentralized. Delphi Digital highlights an important problem with the decentralization of Ether.
Usually, the composition of holders is the go-to metric for determining a network’s decentralization and health. However, in the case of Ethereum, staking is just as important as the distribution of funds. According to Delphi, only four entities manage almost all of the network’s staking, and the biggest of them have some systematic issues with decentralization.
Lido Finance remains the largest stakeholder on the network, but its underlying system for redistributing stETH tokens has some serious flaws. After handing over “real” coins to Lido, investors receive liquid stETH tokens, which they can trade against closed contracts on Ethereum. However, there is a problem.
If you are an investor willing to withdraw your Ethereum from Lido’s contracts, you simply will not be able to do so as no ETH has been unlocked from contracts, which raises a lot of concerns among investors.
Other stakeholders on the network are centralized cryptocurrency exchanges that either use funds from investors who voluntarily surrender their assets for staking or use their funds to redistribute and diversify their holdings.
Additionally, Ethereum has been going through a tough year with the number of OFAC-compliant blocks reaching new highs, making the network more centralized. However, with the incentives that Ethereum developers and MEV relays have implemented, the network should become less regulated as time goes by.
