Analysts emphasized that centralization, whether caused by specific entities or inherent characteristics of the protocol, presents significant risks to the ethereum network. This
In recent months, the ethereum (eth) staking ecosystem has seen significant growth following the implementation of the Merge and Shanghai upgrades, transitioning the network from a proof-of-work to a proof-of-work blockchain. stake. However, this increase in betting activities has posed challenges, as revealed by a recent report by JPMorgan analysts led by Nikolaos Panigirtzoglou.
Decentralized dilemma: ethereum staking ecosystem faces centralization risks
In September 2022, ethereum made the bold transition from proof-of-work to environmentally friendly proof-of-stake, a process called Merge. This update made the ethereum network faster and cheaper to use, leading to an increase in staking. However, a JPMorgan analyst revealed that this growth has resulted in network centralization and a reduction in betting performance. The analysts, led by Nikolaos Panigirtzoglou, tech/2023/10/06/ethereum-has-become-more-centralized-since-the-merge-and-shanghai-upgrades-jpmorgan/?_gl=1*o3y7pb*_up*MQ..*_ga*MTk3MTMyMjcxNy4xNjk2NTc5NTc1*_ga_VM3STRYVN8*MTY5NjU3OTU3NC4xLjAuMTY5NjU3OTU3NC4wLjAuMA” target=”_blank” rel=”nofollow noopener”>saying:
“The increase in ethereum staking since the Merge and Shanghai upgrades has come at a cost, as the ethereum network became more centralized, leading to an overall decline in staking yield from 7.3% to 5%.” ,5%”.
According to analysts, liquid betting providers, especially Lido, played an important role in this centralization. Despite being decentralized in theory, these providers showed high centralization in practice. JPMorgan analysis revealed that the top 5 liquid staking providers controlled more than 50% of staking on the eth network. The Lido alone represented almost a third of the bets. The staking platform has also had to add more node operators to ensure that the amount of staked ether controlled by a single operator is controlled.
Analysts emphasized that centralization, whether caused by specific entities or inherent characteristics of the protocol, presents significant risks to the ethereum network. This risk arises because when power becomes highly concentrated, particularly in the hands of major liquidity providers or node operators, vulnerabilities are introduced. These concentrated entities could become single points of failure, making the network susceptible to outages and potential attacks. Additionally, there are concerns that they could collaborate to establish an oligopoly, prioritizing their own interests over the broader crypto community, which could involve censoring particular transactions or unfairly benefiting from end-user transactions through front-running.
ethereum has been disappointing, according to JPMorgan analysts
The analyst also said that ethereum has not met expectations in terms of network activity. While the switch to proof-of-stake significantly reduced ethereum‘s energy consumption, the increase in network activity has been disappointing. Panigirtzoglou ethereum-shanghai-disappointing” target=”_blank” rel=”nofollow noopener”>fixed:
“While the ethereum network’s power consumption has collapsed by over 99%, ethereum supply is shrinking and staking has increased sharply (with the amount of ether staked by 50% since the Shanghai upgrade), the increase in network activity has been quite disappointing.”
As the ethereum community faces these challenges, it is crucial to address centralization risks and reevaluate the structure of the ecosystem. Decentralized platforms must balance fostering growth with ensuring network security and resilience. The industry is closely monitoring how ethereum stakeholders respond to these concerns, as the future of the network’s decentralized financial world hangs in the balance.
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Temitope is a writer with over four years of experience writing in various niches. He has a special interest in the fintech and blockchain spaces and enjoys writing articles in those areas. He has a bachelor’s and master’s degree in linguistics. When he’s not writing, he trades currencies and plays video games.
