Lido Staking: A decentralization risk for Ethereum

October 2, 2023

Ethereum's decentralization at risk as Lido controls 38% of all validators

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GM πŸ‘‹

Authorities have arrested crypto fugitive Su Zhu.

If you don’t know who that is, he’s the founder of Three Arrows Capital. A hedge fund that lost $10 billion.


He got caught while attempting to flee Singapore πŸ‘€

Matt & Vineet




Lido's near-monopoly in Ethereum staking is making waves.

First, What is Lido?

It’s a Liquid Staking Derivatives protocol.

It allows users to stake their $ETH without a minimum limit, compared to staking directly on Ethereum, which requires a 32 $ETH minimum stake.

When you stake your $ETH on Lido, you get stETH in return - which is a derivative of ETH.

You can use stETH to do other DeFi activities like borrowing, lending, or earning yields in a liquidity pool.

So DeFi users like Lido.

Since its 2020 launch, it's expanded to support ETH 2.0, Solana, and Polkadot.

The Problem

Lido controls 38% of all Ethereum validators.

Vitalik Buterin himself has said anything over 18% is too much.

This imbalance could compromise the security and trustless nature of Ethereum's network.

To make matters worse, only 18% of all ETH is staked.

Compare this to 80% in Solana and 60% in Avalanche.

More staked ETH equals more security.


Lido is risking Ethereum

If Lido were compromised, the consequences could be severe.

  1. Lido is a centralized organization owned by VC firms. If Lido gets bigger, essentially, it means that those VC firms will control Ethereum as well.
  2. In Lido, only a few people control the vote. It’s very easy for the regulators to knock on 3 doors and shut down Lido, if they want to. This could close Ethereum, if it ever happens.
  3. Lido’s shutdown will have an impact on the finality of the chain and it will make it slower. Finality is the time required for a reasonable guarantee that crypto transactions executed on the blockchain will not be reversed or changed. Users want to know quickly if their transactions went through.

Vitalik and others have offered solutions to avoid Lido’s dominance, including:

  • Self-limiting to a maximum market dominance of 22%
  • Encouraging ecosystem users to diversify to different staking pool operators as a short-term solution



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