Is Lido DAO’s staking dominance a silent threat to Ethereum’s decentralization?

Coinbase crypto exchange has carved a notable niche for itself, becoming the second-largest entity when it comes to Ethereum (ETH) staking. Data from Dune analytics meticulously examined by Dragonfly’s data scientist, hildobby, revealed that Coinbase presently holds a significant cache of 3.873 million staked ETH, translating to 14.1% of the total staked ETH.

This development unfolds amidst a backdrop of increasing apprehensions surrounding network centralization, primarily propelled by Lido DAO’s escalating dominance in the ETH staking. However, Lido DAO, with its impressive hold over one-third of all staked ETH, continues to overshadow Coinbase’s strides in this sphere.

Moreover, other key players in the ETH staking space have also been spotlighted, including Binance and Kraken exchanges, who have secured a 4.2% and 3.0% market share, respectively. 

Additionally, the Figment staking service is holding its ground with a 4.9% market slice. Over the preceding six months, Coinbase has witnessed a substantial 44% uptick in its ETH staking activity. Interestingly, this surge aligns with the period following the Ethereum Shanghai upgrade’s activation.

Centralization concerns amid Lido DAO’s dominance

Contrary to initial fears that the Shanghai upgrade might trigger a decline in staked ETH, the enhancement has in fact, bolstered staker’s confidence. Consequently, the Ethereum network has seen a net positive inflow of 7.84 million ETH since the upgrade’s implementation in April, pushing the total staked ETH to 27.42 million, which now embodies a notable 22.81% of ETH’s circulating supply.

However, the influence of Lido in the ETH staking market is fostering concerns regarding network centralization. Within the framework of the Proof-of-Stake Consensus model, a larger staked ETH amount equates to enhanced voting power during governance processes. The data delineates Lido’s commanding 8.80 million staked ETH, constituting a formidable 32.11% of the ETH staking market. Additionally, Lido has seen a 55% hike in staking activity over the last six months.

Lido’s current governance system is founded on LDO, which means that only LDO holders have the ability to vote on proposals. As a result, LDO holders possess a certain degree of control over the protocol that stETH holders do not share. This could potentially lead to issues if, for example, LDO holders propose to change something that could have negative consequences for liquid stakers.

Lido’s DAO token is currently the 33rd most traded token, with a market capitalization of just over $1.38 billion, according to data from CoinGecko. In contrast, its sETH is the seventh most widely traded token, with a market cap of about $14.1 billion.

At the time of reporting, the value of ETH is at $1,597.44, marking a 1.44% dip within the last 24 hours, while its 24-hour trading volume has increased by 52.82%, now evaluated at $4.335 billion. 

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