Lido community debates limiting staked Ethereum as centralization concerns grow

Members of the Lido community have begun Discussion Whether staking service providers need to limit their share of staking Ethereum due to the risk of systematic centralization on the blockchain network.

The Lido team has submitted a governance proposal to discuss the pros and cons of limiting Ethereum shares.

According to the proposal, several major contributors to Ethereum, such as Vitalik Buterin, have expressed their views on the dangers of Lido’s network domination. Some stakeholders have suggested that service providers reduce their market share from 15% to 33%.

This proposal also comes when the value of bet Ethereum is de-pegged from the value of ETH. This leads to large-scale liquidations, and there is growing concern that stETH can be redeemed for ETH after merging, which can complicate Ethereum merging.

Discussion in favor of staking restrictions

The proposal recommends that those who agree with a particular view can vote in favor of staking restrictions. These include the fact that most of one protocol in Ethereum’s governance power threatens its decentralization.

In addition, anyone who believes that other liquid staking solutions will follow Lido’s footsteps and limit staking shares should vote for support.

In addition, we need to believe that other decentralized staking protocols, such as rocket pools, may be able to cope with the supply shortages caused by Lido’s limiting its share.

Also, voting for support means agreeing that Ethereum betting is not a winning market. Therefore, Lido needs to limit its advantages so that competing solutions can grow over time.

Discussion of staking restrictions

However, those who vote against it in May do so if they believe that a centralized exchange is at risk of dominating the staking market. This is a bigger issue for Ethereum’s decentralization than for Lido’s governance.

It is also possible that other liquid staking solutions do not self-limit or make operations transparent like Lido does. Rocket pools may not even grow fast enough to cope with supply shortages.

In addition, if the market is a winner, the winner must be a decentralized protocol like Lido with fair and transparent practices.

Discussions are ongoing and voting will not take place in the weeks. It is not yet known which direction the community will be heading.