Will Proof-of-Stake Push Ethereum Towards Centralization?

Will Proof-of-Stake Push Ethereum Towards Centralization?

The Beacon chain – supposed to be the spine of the Ethereum network – went live on December 1, 2020.

Considering the Beacon chain as a big lighthouse rising about the sea of transactions of data is said to be the heartbeat of the Ethereum network as its constantly scanning, validating, collecting votes, and distributing rewards to the network validators that correctly attest to the transactional data to attach a block to the blockchain.

The key function of this chain is to manage the proof-of-stake network protocol and all other shard chains. Talking about the Ethereum proof-of-stake protocol, Lido comes into the light as the biggest liquid staking protocol on Ethereum's Beacon chain commanding a whopping one-third of the network's staking activity.

Lido as a staking service makes it possible for its users to bypass the 32 ETH requirement to run a validator node along with freeing them from the obligation of managing the technical maintenance requirements for the validator software. In simple words, with Lido, you as a user can earn staking rewards without worrying about qualifying for the possession of the 32 ETH requirements.

With Lido's 33% staking share in the market along with 54% combined share of Lido along with Coinbase, Kraken, and Binance, Lido has amassed a total of 73,369 stakers bringing an ETH bank of 4.2 million ether staked on Lido itself.

A great point of attraction for staking is based upon the liberty of accessing, moving and even re-staking the staked ETH through Lido's derivative token – stETH.

To a shocking surprise, the top 100 holders of LDO, the governance token for Lido DAO, possess almost 93.1% of total supply. So with Lido controlling 33% percent of Ethereum's market share, it can be a potential centralization problem cum attack on PoS.

Despite the fact that it was created as an alternate staking-as-a-service to Coinbase, Lido's centralization problem increases the problems of validator slashing, smart contract exploits and governance attacks.

Now that Lido holds the Lion's share in the Ethereum's staking pools, Coinbase, Binance and Kraken could be seen as the antidote that may create the decentralization impact to balance out Lido's centralization issue in the future.

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