The US Securities and Exchange Commission is convinced that all crypto assets other than Bitcoin are securities. His latest war against crypto exchanges has included staking services, which the regulator is seeking to shut down.
This could push more staked ETH off of exchanges and onto the market-leading liquid staking provider, Lido. This may sound good, but it presents significant risks to the Ethereum ecosystem.
Lido Participation Risks Exposed
Lido provides liquid staking services for Ethereum as an alternative to own staking, which is highly technical and involves exchanges that charge substantial fees.
It has quickly become the market leader with 7.18 million ETH staked, or 36% of the total 19.6 million staked.
On June 13, ‘Bankless’ Ethereum advocates sounded the alarm on Lido, vocation for the prevention of your dominance from ETH staking.
A continued SEC crackdown on exchanges is likely to push more Ethereum staked on Lido, he noted. There was already a spike in Coinbase staked ETH redemptions last week after the regulator’s lawsuit.
Kraken was forced to end its Ethereum staking services for US users in February, resulting in an exodus as soon as Shapella launched.
Also, Lido’s market share has grown since the Shapella update allowed withdrawals.
Ethereum developers like Danny Ryan have warned about the dangers of “cartelization” of betting, where platforms like Lido can extract outsized profits compared to non-pooled capital.
Bankless reported that the platform was near the first threshold with around a third of all ETH staked.
“Lido is approaching the first of the three thresholds at which Ethereum is most easily manipulated by an attacker.”
He added that Lido has already voted against self-limiting deposits, but Ethereum advocates are now calling for them to do so.
“Ethereum is unlikely to implement such controls at the protocol level, but it is clear that Lido must face economic repercussions,” Bankless noted.
There is a growing movement to divest from Lido and explore alternative Ethereum staking options.
“The Etherians must unite and decrease our reliance on Lido to prevent their dominance over staking!”
ETH Price Outlook
Ethereum staking deposits still outpace withdrawals, however asset prices have taken a hit following last week’s regulatory attacks on the industry.
ETH was trading flat on the day at $1,745 at the time of writing, according to CoinGecko. The asset has lost more than 8% since the SEC sued Binance and Coinbase last week, more than its big brother Bitcoin.
Furthermore, it is looking increasingly bearish as it has fallen to the lower end of its three-month range channel.
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