Rise in Ethereum Staking Still Carries Major ‘Lido’ Risk

Paigambar Mohan Raj
Source: Bitcoinist

According to crypto analysis firm Glassnode, Ethereum (ETH) staking deposits have significantly increased after the Shanghai hardfork. The firm highlighted that stakers have become more confident with the new flexibility to unstake their tokens. Glassnode noted that deposit activity reached a high on June 2, with over 13,595 new deposits. The new deposits are worth over 408,000 ETH ($799,643.28). Furthermore, Ethereum staking deposits have significantly outnumbered exchange deposits, which are flat at around 30,000 ETH.

Before the Shanghai update went into effect, many were worried that Ethereum would face a market sell-off as fear of users unstaking their tokens became evident. However, that has not been the case. Instead, stakers have become more confident in putting their tokens to use. However, despite the surge in staking deposits, ETH has only rallied by around 3.4% in the second quarter of 2023, compared to Bitcoin’s 8.6%.

Also Read: What Are The Best Ethereum Staking Platforms?

Additionally, Glassnode noted that Lido’s stETH continued to dominate the liquid staking derivative space. stETH has become a preferred collateral asset, the firm added.

Is Ethereum facing a risk of staking cartelization?

Recently, an Ethereum developer Danny Ryan posted an article on how some firms above “critical consensus thresholds” pose a risk to the ecosystem. Ryan stated, “With withdrawals enabled, it’s time to reshuffle.”

Protocols that allow adaptable ETH staking include Lido and other liquid staking alternatives. Their “decentralized” government, nevertheless, is dubious and might promote centralization. Liquid staking derivative protocols, according to Ryan, are a “stratum for cartelization” that pose serious hazards to the Ethereum protocol. He noted that those investing money in these methods should be aware of the dangers.

Ryan added that liquid staking derivative “protocols should self-limit to avoid centralization and protocol risk that can ultimately destroy their product.”

Also Read: Ethereum Could be a Layer-2 for Solana: Co-Founder

Another opportunity for cartelization is the selection of node operators. The LDO governance token may be the decisive factor in the Lido case, which might put Ethereum in danger. This is due to the frequent manipulation of DeFi governance by whales and VCs.

The developer stated, “Thus the governance token deciding NOs [node operators] can become a self-reinforcing cartelization and abuse of the Ethereum protocol.”

In his conclusion, Ryan said that stakers and other liquid staking derivative products like Lido should self-limit for their own benefit.