The landscape of ETH staking has witnessed a significant shift, with prominent crypto exchange Coinbase rising to become the second-largest ETH staking entity. Chinese reporter Colin Wu reveals that according to a report from Dragonfly data scientist hildobby, Coinbase currently holds 3.873 million staked ETH, representing a substantial 14.1% of all staked ETH. This development has raised concerns about network centralization, particularly in light of Lido DAO’s dominance in the ETH staking market.
Centralization Worries Amidst Growing Market Share
Coinbase’s dominance in the ETH staking sphere is second only to that of liquid staking platform Lido DAO, which accounts for a significant one-third of all staked ETH. Other platforms such as Binance and Kraken exchanges also have a notable market share, with 4.2% and 3.0% respectively. The Figment staking pool secures the third position with a market dominance of 4.9%. However, it is the rapid increase in Coinbase’s ETH staking activity, experiencing a 44% surge over the past six months, that has drawn attention.
Ethereum Shanghai Upgrade Boosts Stakers Confidence
Coincidentally, Coinbase’s surge in ETH staking activity aligns with the period during which the Ethereum Shanghai upgrade has been active. Contrary to concerns that the network update would lead to a decline in staked ETH due to the ability to withdraw assets, the Shanghai upgrade has actually instilled confidence among stakers. Since the upgrade’s implementation in April, there has been a net positive flow of 7.84 million ETH, leading to a total amount of staked ETH standing at an impressive 27.42 million ETH, which constitutes 22.81% of ETH’s circulating supply.
While Lido DAO’s dominance in the ETH staking market is noteworthy, it also raises concerns about centralization. With a significant 8.80 million staked ETH, Lido accounts for 32.11% of the ETH staking market. This concentration of power translates to higher voting power during governance processes due to the Proof-of-Stake Consensus model. Ethereum’s official blog acknowledges these concerns, highlighting that a validator controlling a minimum of 33% of staked ETH has the ability to prevent the network from finalizing any block, even in the presence of a 66% majority. Furthermore, if a validator acquires 55% of the staked ETH, they could potentially split the Ethereum chain into two forks. However, it is essential to note that there is currently no evidence indicating any malicious intentions from Lido DAO towards the Ethereum network.
At the time of writing, ETH is trading at $1,620.18, experiencing a 1.36% decline in the last day according to CoinMarketCap. The token’s daily trading volume has also decreased by 36.41%, with a total value of $2.86 billion.
Addressing the Concerns
The rise of Coinbase as a significant ETH staking entity and the concerns surrounding Lido DAO’s dominance highlight the importance of addressing potential centralization in the ETH staking market. To ensure a decentralized network and maintain a fair governance process, it is crucial for more participants to enter the staking market, increasing the distribution of ETH stakes among various entities. This diversification would reduce the risk of a single validator holding significant power, mitigating the potential for network manipulation.
As ETH staking becomes increasingly popular, Coinbase has emerged as a key player in the market. While their rise signifies the growth of the staking industry, it also raises concerns about centralization. The dominance of Lido DAO in the ETH staking sphere further amplifies these worries. To foster a truly decentralized network, it is essential for market participants and stakeholders to address these concerns by encouraging more diversity and participation in the staking ecosystem. This will help ensure a fair and transparent governance process, safeguarding the integrity and decentralization of the Ethereum network.