Ethereum Liquid Staking Providers Enforce 22% Decentralization Cap

Ethereum Liquid Staking Providers Enforce 22% Decentralization Cap

Several Ethereum liquid staking providers have introduced or are in the process of implementing a self-imposed cap, committing not to hold more than 22% of the Ethereum staking market. This measure is taken to uphold the decentralization of the Ethereum network.

Ethereum staking providers that have either already adopted or are in the process of adopting the self-imposed cap rule include Rocket Pool, StakeWise, Stader Labs, and Diva Staking, as reported by Ethereum core developer Superphiz. Puffer Finance, a liquid staking service, has also announced its commitment to the self-imposed cap rule.

Puffer Finance, another player in the liquid staking sector, has also announced its dedication to abiding by the self-imposed cap. This proposal appears to be a response to growing apprehensions about the centralization of Ethereum staking.

The rationale behind setting the self-imposed limit at 22%, as clarified by Superphiz, is based on the requirement that 66% of validators must reach consensus on Ethereum's state. By setting the cap below 22%, it ensures that a minimum of four significant entities must collaborate to achieve chain finalization.

Finality marks the stage in blockchain transactions where they are deemed immutable, meaning that the transactions within a block are theoretically unalterable. The concept was introduced by Superphiz in May 2022 when he raised the question of whether a staking pool would prioritize the blockchain's well-being over its own financial gains.

In an intriguing turn of events, the most significant Ethereum liquid staking provider, Lido Finance, chose not to implement self-limitation with an overwhelming 99.81% majority in a vote conducted in June. It has been expressed that Lido Finance intends to have a significant presence among the validators on the beacon chain, as noted by Superphiz in a post on August 31st.

Lido Finance currently holds a dominant position in the Ethereum staking market, commanding a substantial 32.4% of all staked Ether. In comparison, the next largest entity, Coinbase, holds a significantly smaller share, amounting to just 8.7% of the market, as indicated by data from Dune Analytics.

Previous Next

This information is for educational purposes only and does not constitute investment advice. No person should rely on it to make any investment. Investing carries risks, including the loss of capital. All opinions expressed are subject to change without notice. Past performance is not indicative of future results. Always seek the advice of a licensed investment professional before making any investment.