The Ethereum (ETH) community is concerned about the increasing market dominance of lido (LDO), a Liquid Strike Derivative (LSD) project. The strike pole is gradually becoming a monopoly on the staking market and that worries the community.
What is liquid staking on Ethereum?
Some crypto coins use it proof of stake (PoS) fashion model. In this model, transactions are processed by so-called validatorsinvestors who stake a minimum amount. The stake in this case is the amount of tokens that are tied up. Freezing means not using your tokens for a period of time to provide liquidity. In return, you can earn a certain return.
Liquid staking refers to depositing ETH into a protocol which then merges it with other users’ deposits and stakes the ETH on their behalf. In return, users get another token that represents their staked position. In the case of Lido, users receive staked ether or stETH.
A current problem is that Lido has built up huge market dominance. Whopping 74% of all LSD is currently in this project. Lido’s stake is 7 million ethereum, which is equivalent to $13 billion. The size of the stake has increased by 12% in the last month. The scope of the protocol goes against the principle of DeFi in, as it is not very decentralized this way.
Centralization is a problem
In a tweet, the founder of The Daily Gwei, Anthony Sassano, that he thinks the concerns about centralization are appropriate. He emphasizes that users should voice their concerns, doing nothing will not help. If one wants to tackle Lido’s incipient monopoly, one needs to establish better LSDs. However, indicating that something is going wrong is only a first step, the problem must then be tackled collectively.
Many of my fellow Ethereans are going to hate me for this tweet, but it needs to be tweeted.
Centralization concerns around LSD’s are well-founded and I agree with a lot of them but the solutions presented often leave a lot to be desired (particularly putting too much emphasis…
— sassal.eth 🦇🔊 (@sassal0x) June 1, 2023
Ari Paul, the founder of BlockTower Central, responded to this commenting that he would be impressed if the Ethereum community collectively solve the problem. He writes that the biggest problem arises when a project like Lido decides to censor transactions to avoid prosecution.
Many users say that Lido is so popular because staking is not exactly accessible. It requires knowledge, research, risk and effort and that makes it unattractive. According to Ethereum, one of the few parties that really seems to be addressing this problem is developer Eric Connor Company Dapp node, which sells hardware that does not require technical knowledge. One can start staking ‘with 1 click’.