Analysts announce increased centralization of the Ethereum network

▶ JPMorgan notes a drop in income from ETH staking

Experts from JPMorgan believe that a serious growth of attention to Ethereum staking has become a prerequisite for increased centralization of the network and a fall in income from staking. A significant share of such activity falls on the service for liquid staking of crypto coins Lido, analysts indicated.

“The growth in staking volume in Ethereum after the Merge and Shanghai updates came at a high price, as the Ethereum network became more centralized and the overall profitability of staking decreased,” the experts noted.

After Merge, the ETH blockchain moved from Proof-of-work to the Proof-of-stake category. And the Shanghai hard fork, which took place this year, helped validators withdraw blocked cryptocurrency into the ETH network and reinvest it, which contributed to a significant increase in staking volume.

Five large providers control more than half of the blocked tokens in the Ethereum network, Lido’s share is almost a third, JPMorgan said. According to analysts, platforms such as Lido, despite being decentralized platforms, “assume a high degree of centralization.”

“Needless to say, the centralization of any organization or protocol creates risks for the Ethereum network, as a concentrated number of liquidity providers or node operators could become a single point of vulnerability, be attacked, or collude to create an oligopoly that would advance its own interests to the detriment of interests of the community, for example, by censoring certain transactions,” JPMorgan says.

There is another complexity associated with the growth of highly liquid staking. We are talking about using derivative tokens as collateral in parallel in various DeFi protocols.

Such a situation can provoke a wave of liquidations if the value of the stabilization fund drops significantly, or there is a hacker attack on it, or a protocol error.

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