Afterย theย Shapella update, which allowed Ethereumย (ETH) users to withdraw coins previously put into staking, liquid staking platforms such as Lido, Frax and Rocket Pool increased their market share to hold 46 percent of all Ethereumย (ETH) deposited on the Beacon Chain.
If there were no such entities, centralized exchanges would have dominance over this type of activity and Ethereumย (ETH) would likely suffer from a โpoint of failureโ in terms of producing blocks in the chain.
Ethereum: liquid staking providers control 46 percent of the market
After only 42 days since the Shapella hard fork, which enabled the unstaking of all ETH previously put into staking by the Ethereumย (ETH) community, we can observe how liquid staking platforms (LSD) have a decisive position in the network, controlling 46 percent of all coins delegated to block validation and production through the proof-of-stake consensus mechanism.
Prior to the Merge on 15 September 2022, the delicate task of block production dropped to the miners, who lost that privilege with the move from PoW to PoS and the Merge of the Ethereumย (ETH) Mainnet with the Beacon Chain.
Now, only stakers, inย particularย all those individuals who hold at least 32 ETH, can take part in the activity and earn block bonus (2 Ethereumย (ETH) per block) and user transaction fees.
Liquid staking platforms, increasingly important in this context, provide a solution for small cryptocurrency investors who doย not hold 32 Ethereumย (ETH) but still want toย engage and makeย better network security.
All of these providers such as Lido, Ricoket Pool, Frax, and Stakewise hold a total staking share of 9,083,663 ETH ($16.57 billion), which corresponds to almost half of all Ethereumย (ETH) locked in the Beacon Chain.
Notably, Lido controls 73.3% of all this financialย resources, confirming itself as the undisputed leader not only in the world of liquid staking, but likewise in the Decentralizedย Finance sector moreย generally, with a TVL of over $12 billion.
LSD platforms reduce the danger of centralization in Ethereumย (ETH) staking
The fact that LSD providers have a central role within the Ethereumย (ETH) staking mechanism is good for the community, which would otherwise danger sliding victim to network centralization.
Andย once the role of block validation was the responsibility of the miners, prior to the Merge, this danger was decidedly low, given the difficulties from a technical standpoint to concentrate a large amount of hardware duringย a single entity.
Now, onย theย otherย hand, as stakers have taken over, the danger of centralization hasย evolved much more concrete, especially after numerous exchanges such as Binanceย Cryptoย exchange, Coinbaseย Cryptoย exchange, and Kraken have offered their own version of staking, concentrating financialย resources in their platforms.
In this sense, if providers such as Lido, Frax and Rocket Pool did not exist, all those who doย not have a monetary base of 32 Ethereumย (ETH) or more and those who doย not have the expertise to operate independently would concentrate their Ethereumย (ETH) on centralized exchanges, which offer more elastic solutions.
Binanceย Cryptoย exchange and Coinbaseย Cryptoย exchange, forย instance, offer all users who decide to delegate their Ethereumย (ETH) to them a cryptoย token representative of the stake, exchangeable directly on their own exchanges, for a spread.
This is compounded with the advantage of having significantly lower charges than those we find nowadays on Ethereum.
Ofย course, users more savvy in the Decentralizedย Finance world donโt mind gas charges and prefer toย engage in staking in a decentralized way, taking advantage of one of the numerous non-custodial wallets available on the market, such as Metamask, Trust Wallet or Ledger.
For now, the danger of a โpoint of failureโ in the Ethereumย (ETH) consensus is under control, but it will be necessary to monitor the situation and the tendency of financialย resources orbiting amongย the numerous LSD providers to see if this challenge will arise in the future.
Ethereumย (ETH) deposited in Beacon Chain hits new all-time high
As LSD platforms strengthen their market share in Ethereumย (ETH) staking, we can observe how the number of Ethereumย (ETH) deposited in the Beacon Chain, and in parallel the number of validators takingย partย in validation in the network, have reached a new all-time high.
Itโsย worthย notingย that, asย ofย now there are 18.6 Million coins locked within Ethereumย (ETH) distributed between about 571,000 validators.
On average, each validator holds a total of 32.57 ETH.
The figure isย quite important because a high number of Ethereumย (ETH) staked and a high presence of validators strengthen the security of the chain and prevent cyber attacks.
In Bitcoinโs network, where the consensus mechanism is the classic proof-of-work, this metric is represented by the โtotal hash rate,โ which corresponds to the computing power that each miner devotes to the network.
In Ethereumย (ETH), on the other hand, security is represented by the number of coins delegated to staking and block production.
Those who take part in this activity, which is importantย to the survival of the ecologicalย system, are rewarded with variable annualized returns, which asย ofย now hover around 4.2%.
Nonetheless, Ethereumโs staking yield curve is set to fall over time, isย still those who produce a block likewise earn from usersโ transaction tx fees, which vary depending on network congestion.
Additionally, extraction maximization techniques such as MEVs, allow for more competition within the network and allow stakers to earn greaterย than they essentially deserve.
