The recent surge in Ether (ETH) stakers has caused the market share of liquid staking solution Lido to decrease from 32% to 29.57% as of December 2023. This has helped alleviate concerns about Lido’s growing dominance in the ecosystem.
Lido has become extremely popular in the ETH staking space, and due to the lack of competition, it has captured the majority of the market. However, there were worries within the community that any entity controlling over 33% of the market could have significant influence over the Ethereum blockchain.
According to data from crypto analytics platform Dune, as of April 4, Lido’s market share for staked ETH has fallen below 30%. Other notable contributors to the ETH staking ecosystem include crypto exchanges Coinbase (14.04%) and Binance (3.75%), as well as Ethereum staking platform Kiln (3.5%).
Interestingly, the second-largest entity in ETH staking is listed as “unidentified,” currently representing 16.9% of the market. There are a total of 26 known entities contributing to ETH staking, including crypto exchanges Kraken (2.4%), Bitcoin Suisse (1.6%), OKX (1.2%), and Upbit (1.1%).
Ethereum co-founder Vitalik Buterin has stated that stake pools should not have more than 15% control and should adjust their fee rates to stay below this threshold.
In an attempt to address the issue of Lido’s dominance in ETH staking, the Lido decentralized autonomous organization (DAO) community previously proposed a hard limit in May 2022. However, the proposal was rejected with a 99.81% vote in June 2022.
The introduction of increased competition among ETH staking service providers is expected to contribute to the decentralization of the staking ecosystem.
A recent report by Coinbase highlighted potential risks associated with Ether restaking and the issuance of liquid restaking tokens (LRTs). The report noted that while restaking can increase earnings, it can also compound risks by allocating funds to similar validators for higher yield. This could result in a higher, albeit concealed, risk profile for LRTs aiming to maximize their market share.
Overall, it is crucial to address the dominance of certain entities in the ETH staking market to ensure a more decentralized and resilient ecosystem.