In a proactive move to maintain the decentralization of the Ethereum network, several liquid staking providers have either already implemented or are actively working to establish a self-imposed limit, pledging not to hold more than 22% of the Ethereum staking market. This concerted effort aims to ensure that the Ethereum ecosystem remains resilient and distributed, preventing excessive centralization.
Prominent Ethereum staking providers, including Rocket Pool, StakeWise, Stader Labs, and Diva Staking, have either committed to or are in the process of endorsing this self-limit rule, as confirmed by Ethereum core developer Superphiz. Puffer Finance, another key player in the liquid staking arena, has also announced its commitment to this initiative. The proposal addresses growing concerns about the concentration of power within Ethereum staking, a development that could undermine the network’s decentralized nature.
The choice of a 22% limit was not arbitrary but strategically devised. Ethereum’s consensus mechanism requires 66% of validators to reach an agreement on the network’s state, and setting the limit below 22% ensures that, in order to collude and exert undue influence on the network, at least four major entities would need to conspire to achieve finalization. Finality, in this context, denotes the point at which transactions on the blockchain become immutable, safeguarding the integrity of transactions within a block.
Superphiz initially proposed this idea in May 2022, questioning whether staking pools would prioritize the health of the Ethereum network over their own financial gains. Notably, the largest Ethereum liquid staking provider, Lido Finance, did not opt for self-limitation, with a resounding 99.81% majority vote against it back in June.
This decision by Lido raised concerns, as Superphiz noted in an August 31 post, indicating that the provider expressed its intention to control the majority of validators on the beacon chain. Currently, Lido Finance holds a significant share of the Ethereum staking market, accounting for 32.4% of all staked Ether, while the next major player, Coinbase, holds a comparatively smaller share at 8.7%, as reported by data from Dune Analytics.
Reactions within the Ethereum community have been mixed. Some argue that the self-limit proposal is not related to “Ethereum alignment,” a principle crucial for fostering credible neutrality and permissionless innovation within the Ethereum ecosystem. They contend that those advocating for the proposal might not change their stance if they were in Lido’s position, emphasizing that everyone is acting in their economic self-interest.
However, others express concerns about potential centralization issues, describing Lido’s dominant market share as “disruptive and self-serving.” The debate continues within the Ethereum community as stakeholders grapple with the balance between decentralization and economic incentives in the staking landscape.