Lido Finance’s Dominance Sparks Ethereum Decentralization Concerns

• 32.7% is staked on Lido, over four times as much as on Coinbase (8.7%).
• Critics argue that Lido’s growing influence is threatening Ethereum’s decentralized nature.

Some members of the community are concerned that Lido Finance now controls almost a third of all staked ETH. They argue that Lido’s growing influence is threatening Ethereum’s decentralized nature.

Dune Analytics reports a 95% increase in the total amount of ETH staked over the last year, from $22 billion to $41.6 billion. Of this total, 32.7% is staked on Lido. This over four times as much as on Coinbase (8.7%), which is in second place.

Ethereum’s chief decentralisation officer, Evan Van Ness tweeted:

“Lido may be the biggest attack on Ethereum’s decentralization (‘credible neutrality’) in our entire history.”

Too Much Power Over Ethereum

To stake Ethereum (ETH) with the network’s validators and receive rewards, investors may use Lido, the top decentralized platform in this field. They do this in return for stETH, a token that represents their deposit.

However, as it expands, critics warn that Lido and other liquid staking solutions may be accumulating too much power over Ethereum. And, also run the danger of centralizing too much power in their own decentralized autonomous organizations. They see this as a threat to the democratic principle of the DeFi ecosystem, where token holders may influence the future of projects via their votes.

In fact, it has been argued that all liquid staking derivatives suffer from fundamental flaws that, without properly implemented safeguards, would lead to a complete collapse. Moreover, some have voiced concern that Lido’s increasing centralization may hurt the network’s credibility among institutions and government.

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