Ethereum staking services agree to a 22% cap on all validators

Ethereum staking services agree to a 22% cap on all validators

At least five Ethereum liquid staking providers have imposed or are working to impose a self-limiting rule in which they commit to holding no more than 22% of the Ethereum staking market, which is seen as a move to ensure that the Ethereum network remains decentralized.

Among the Ethereum staking providers that have already committed or are working to commit to the self-limiting rule are Rocket Pool, StakeWise, Stader Labs y Diva Staking, according to Ethereum core developer Superphiz.

Puffer Finance, another liquid staking service, also advertisement his commitment to the self-restraint rule.

These providers are committed (or are in the process of committing) to self-limit to @Rocket_Pool @stakewise_io @staderlabs @divastaking

— superphiz.eth ️ (@superphiz) August 30, 2023

The proposal is presumably aimed at addressing concerns about the increasing centralization of Ethereum staking.

As for why self-limiting was proposed by 22%, Superphiz explained that since 66% of validators must agree on the state of Ethereum, setting the cap below 22% means that at least four major entities must collude for the chain to reach completion.

Completion is the point at which transactions on a blockchain are considered immutable, supposedly ensuring that transactions within a block cannot be tampered with.

The idea was proposal by Superphiz in May 2022 when he questioned whether a staking pool would be willing to put the chain’s health before its own profits.

Interestingly, the largest provider of liquid Ethereum staking, Lido Finance, vote by a majority of 99.81% in June so as not to self-limit.

“They have expressed the intent to control most of the validators on the beacon chain,” Superphiz said in an Aug. 31 post.

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Votes cast by Lido (LDO) token holders on the self-limitation proposal. Source: Snapshot

Currently, Lido dominates the Ethereum staking marketaccounting for 32.4% of all staked Ether, while the next entity, Coinbase, accounts for just 8.7% of the market, according to Dune Analytics data.

Ethereum stakers by amount locked and market share, showing that Lido is above the 22% threshold. Source: Dune Analytics

Who has the reason? Mixed reactions in the Ethereum community

An industry expert, “Mippo”, explained on Aug. 31 that the self-limiting proposal has nothing to do with “Ethereum alignment,” a principle understood to allow for credible neutrality and permissionless innovation on Ethereum.

Mippo claimed that those trying to push the proposal would not budge if they were in Lido’s position.

“Everyone is doing what is economically selfish and rational here,” Mippo concluded.

Yeah because they have way less market share than that now… easy to chirp from the cheap seats.

This has nothing to do with “Ethereum alignment.” None of these teams would self limit were they in Lido’s place.

Everyone is doing the economically selfish and rational thing…

— Mippo (@MikeIppolito_) August 31, 2023

Yeah, because now they have a lot less market share than that… it’s easy to squeal from the cheap seats.

This has nothing to do with the “Ethereum lineup”. None of these teams would limit themselves if they were in Lido’s shoes.

Everyone is doing the economically selfish and rational thing…

“The Ethereum community should not shame more user-friendly solutions like greedy products,” said another observer.

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However, others were more cautious about possible centralization problems, describing Lido’s market share dominance as “disgusting and selfish.”

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