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Lido's monopoly is a systemic risk for Ethereum

04 Oct, 2023
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Ethereum's move to PoS has generated some serious problems requiring developers to intervene. First, staking turned out to be too attractive, and because of the growth in validators, it often faces large-scale failures (read more on that in our article). There are now around 838,000, and this number will reach over 1 million in November.

Image source: beaconcha.in

Second, a 32 ETH (~$53,000) limit to launch one's own node has boosted the popularity of Liquid Staking Derivatives (LSD). This amount was unaffordable for ordinary crypto enthusiasts who are lured by the possibility of passive income. The annual staking yield rate is 3.8% now, but on high network load days, it exceeds 8%.

Image source: beaconcha.in

Staking pool platforms came to the rescue. They make it possible to deposit any amount of funds and give their own token in exchange for staking ETH. Lido became a true monopolist, holding a share of 32.3% of the total volume of staked coins.

Image source: nansen.ai

Meanwhile, its share on the liquid staking market is 71%.

Image source: defillama.com

Vitalik Buterin admits that such an amount in the hands of a single DAO can be the reason for a systematic crisis if Lido is attacked. The larger a node operator is, the more attractive it becomes to fraudsters. By getting access to management, a hacker can use all the available means, including for a 51% attack.

The more probable adverse scenario is associated with problems in managing a potential crisis on the platform. Last year, amid rumours of Lido's lack of liquidity, the stETH token given in exchange for ETH lost its peg, trading at a 10% discount. Due to its importance, the hypothetical collapse of stETH would affect the parent coin.

Источник изображения: криптовалютная биржа StormGain

Ethereum developers are discussing the problem but haven't found an effective solution so far. Last year, the crypto community tried to push Lido, but its validators, with a 99% majority, voted against artificial limitations on platform growth. 


StormGain Analytical Group 
(platform for trading, exchanging and storing cryptocurrency)

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