Lido community debates limiting staked Ethereum as centralization concerns grow

Lido community members have begun debating whether the staking service provider should limit its share of staked Ethereum because of the systemic centralization risk this poses to the blockchain network.

The Lido team submitted a governance proposal discussing the pros and cons of limiting its share of Ethereum staking.

According to the proposal, several major contributors to Ethereum, like Vitalik Buterin, have expressed opinions on the dangers of Lido’s network dominance. Some stakeholders have suggested that the service provider drop its share to between 15% and 33%.

The proposal is also coming at a time when the value of staked Ethereum has de-pegged from that of ETH. This has led to massive liquidation and raised fears that it could complicate Ethereum merge since stETH will be redeemable for ETH after the merge.

Arguments in support of the staking limitations

The proposal recommends that those who agree with certain views can vote in support of a staking limit. These include the fact that one protocol’s majority of the governance power on Ethereum threatens its decentralization.

Furthermore, anyone who believes that other liquid staking solutions will follow Lido’s footsteps and limit their staking share should vote in support.

Additionally, they should believe in the possibility that other decentralized staking protocols like Rocket Pool will be able to meet the supply shortage caused by Lido limiting its share.

Also, voting in support means agreeing that Ethereum staking isn’t a winner-takes-most market. Therefore, Lido should limit its dominance so that competing solutions can grow with time.

Arguments against staking limit

However, those voting against May do so if they believe there is a risk of centralized exchanges dominating the staking market, which will be a bigger issue for Ethereum decentralization than Lido governance.

There’s also the possibility that other liquid staking solutions will not self-limit themselves or make their operations transparent like Lido. It’s even possible that Rocket Pool does not grow fast enough to meet the supply shortfall.

Furthermore, if the market is a winner-take-most one, the winner should be a decentralized protocol like Lido with fair and transparent practices.

Discussions are ongoing, and voting won’t happen for a few weeks. It remains to be seen which direction the community will face.