Liquid staking solution Lido Finance now represents approximately one-third of all staked Ethereum (ETH), which is raising concerns among some community members about its growing influence. They argue Lido’s increasing dominance threatens Ethereum’s overall decentralization.
“Lido may be the biggest attack on Ethereum’s decentralization (‘credible neutrality’) in our entire history,” said Evan Van Ness, Ethereum’s chief decentralization officer, in a tweet.
In the past year, the total ETH staked has increased nearly 95% from just over $22 billion to about $41.6 billion according to Dune Analytics data. Of this amount, Lido accounts for 32.7% of all staked ETH in the market, which is nearly four times higher than runner-up oinbase">Coinbase at 8.7% of ETH staked.
In summary, Lido now makes up one-third of ETH staked, raising centralization issues. Ethereum’s decentralization lead called Lido a major risk, since its 32.7% share dwarfs oinbase">Coinbase’s 8.7% of ETH staked.
Ethereum is designed as a decentralized platform for dApps running on smart contracts, underpinning many DeFi ecosystems and tokens. In this space, Lido is the leading platform for liquid staking of ETH, allowing investors to stake ETH with validators and earn rewards. In return, they receive stETH tokens representing their deposit.
However, as Lido grows, critics warn it and other liquid staking solutions could be amassing excessive influence over Ethereum and risk becoming too centralized in how their DAOs govern themselves. This could undermine the democratic ethos in DeFi where users vote on project direction with their tokens.
Some have argued all liquid staking derivatives “have inherent issues” that without proper controls “can ultimately destroy their product.” The concern is outsized influence and centralized control by a few platforms like Lido could erode the decentralized and democratic ideals of Ethereum and DeFi.
Ethereum investor Ryan Berckman also warned Lido’s increasing centralization could damage its acceptance among corporations and governments, undercutting any hope of becoming a global financial settlement layer.
In a tweet, Berckman said Lido “uniquely threatens” Ethereum’s decentralized reputation through its “uncapped dominance,” which could also limit ETH’s long-term value. He suggests these goals would be undermined if the issue remains unaddressed.
Berckman stated that if Lido’s unchecked growth continues, “it may affect the order of magnitude of our growth rate and, therefore, Ethereum’s benefit to humanity and the number of zeroes on the long-term ETH valuation.”
In summary, the investor cautioned Lido’s centralized power could restrict mainstream adoption and limit ETH’s future price. He said failure to address Lido’s uncapped growth threatens Ethereum’s decentralized nature and mass adoption hopes, reducing its potential value.
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