Lido Finance ETH Staking Nears 33%; Alarming for Decentralization

Blockchain brings revolutionary and harmless solutions to help develop new technologies and adapt existing ones. One key factor in blockchain tech is decentralization, which became its synonym. The broader decentralization finance (DeFi) has the inherent way of a democratic financial system. Ethereum, being the first of such blockchain networks, saw the rise of DeFi protocols and budding decentralization that now, the community thinks, is in jeopardy.

In the past several days, the discussion around Lido Finance being the biggest Ethereum staker saw an increase. This came at a point when some prominent ETH staking protocols reportedly committed or were preparing to commit the self-limit rule of 22%.

Amid this 22% self-limiting ETH staking provision, the issue of Lido Finance’s current Ethereum staking came into the mainstream discussion. The liquid staking protocol is the biggest on the Ethereum blockchain and accounts for about 32.4% of the overall staked ETH, according to the Dune Analytics data.

The staking mechanism over the decentralized protocols is meant to provide a better alternative to the traditional governance system. The regime was expected to work smoothly keeping the underlying decentralization intact. But it gets disturbed with the more control getting amassed to a single entity.

Community-Wide Concern Around Lido Ethereum Staking

Ethereum community members considered the issue a threat to the decentralization of the blockchain network and called out over social media.

In an X (formerly Twitter) post on Friday, the chief decentralization officer at Ethereum, Evan Van Ness, stated Lido Finance as the “biggest attack on Ethereum’s decentralization.” Historically the protocol is on its way to breach 33% of all the staked Ethereum and yet no one is talking about it.

Lido may be the biggest attack on Ethereum’s decentralization (“credible neutrality”) in our entire history
It’s about to breach 33%
Yet many are staying silent
Why? pic.twitter.com/O7Y37FZrE0
— Evan Van Ness 🧉💸 (@evan_van_ness) September 1, 2023

Prominent Ethereum investor Ryan Berckman posted a long tweet and talked about the threat to Ethereum from the growing centralization of Lido.

imo, the realistic worst-case scenario for Lido’s uncapped dominance isn’t network disruption.
It’s that Ethereum develops a reputation among corporations and governments as having been “captured” or “not actually that decentralized relative to other chains”.
If this were to…
— Ryan Berckmans ryanb.eth🦇🔊 (@ryanberckmans) September 1, 2023

Berckman expressed concerns that Lido’s “uncapped dominance” uniquely poses a threat to Ethereum’s reputation as a decentralized blockchain. He also raised the possibility that this dominance could potentially impact the long-term valuation of ETH. Berckman urged that addressing this issue is crucial to safeguarding these goals from being hindered.

Berckman conveyed that if such a scenario were to occur, it could potentially influence the rate of their growth significantly. Consequently, it might also impact the benefits Ethereum brings to humanity and the numerical value of ETH’s long-term valuation.