Lido, the liquidity staking protocol that supports staking, is now under the control of some of the Ethereum community members. point of view. There are fears that the platform is centralizing Ethereum and could make the blockchain fragile.
As of June 1, Lido is the largest decentralized finance protocol. DeFiLlama data shows that the platform manages 13.2 billion dollars in assets at stake.
At this level, Lido has almost double the Total Value Locked (TVL) than in MakerDAO, one of the original decentralized money markets on the sphere.
MakerDAO has $6.29 billion in TVL and only serves Ethereum.
Is Lido the weak point of Ethereum?
The concern of critics is not just Lido’s dominance in terms of TVL, but also the number of validators using the protocol.
according to chain dataMore than 19 million Ethereum have been staked on the Beacon Chain, that is, the proof of stake network.
However, of this amount, 6 million Ethereum have been staked through Lido. This translates to roughly 36% of all staked Ethereum going through the liquidity staking protocol.
Also, the parallel data shows that 32% of all Ethereum validators use the Lido infrastructure.
In Ethereum’s proof-of-stake system, validators are needed to verify transactions and protect the network against external attacks.
The distribution of validators, which now do not have to run expensive and power-hungry platforms, is critical to decentralizing the Ethereum network.
The global distribution of Ethereum validators would result in a robust platform where users and protocol operators, who currently manage more than $26 billion in assets, do not have to worry about a majority attack.
It is this level of centralization emerging on Lido that some members of the Ethereum community worry could destabilize the network.
In the past, Prysm, a client operator, lost a significant chunk of its market share when more than 66% of all Ethereum proof-of-work nodes were found to be using its software.
Could this same intervention be necessary to suppress the expansion of Lido?
According to critics, the current community lacks educational material and initiative to address problems as they arise.
So far, with 32% of all validators using the LidoDAO infrastructure, it is more than double the limit that Vitalik Buterin, the co-founder of Ethereum, had. recommended for each entity that you want to host the network validators.
LDO prices could fall
With the emergence of centralization issues, LidoDAO might be forced to decentralize, even splitting into multiple entities.
However, for LDO holders, any action to break the dominance of the protocol could have a drastic effect on prices.
As of June 1, LDO, the LDO governance token, is one of the best performers.
Since the December 2022 lows, LDO is up 125% to spot rates as more ETH holders opted to participate through Lido Finance infrastructure for annual rewards from Ethereum’s Proof-of-Stake Network .
Featured Image from Canva, Chart from TradingView
