Lido DAO token holders have begun voting to determine whether the DeFi platform should reduce its staking pool.
The vote was based on the governance proposal published on June 24 and is the result of a month of deliberation over Lido’s staking dominance over whether they should self-limit to limit risk centralization or not.
Lido currently holds 31% of all staked ETH (stETH) on the PoS Ethereum blockchain, aka Beacon Chain. Staking dominance stoked fear in the Ethereum community, and critics fear it will threaten the network’s decentralization feature.
Voting is expected to end on July 1 and decide whether Lido is self-limiting. If a majority votes in favor, another vote will be held on how to limit the self.
Concerns about stETH dominance
In the governance proposal, Lido claims staking dominance will give them more voting power when the Beacon Chain goes live. As a platform that goes against centralized exchanges, such centralized voting poses an existential threat to the blockchain.
The Ethereum community has pointed to similar concerns about centralizing voting rights. This DeFi platform currently has around a third of all stETH, giving it massive voting rights when the transition to Beacon Chain is complete.
According to Vitalik Buterin, co-founder of Ethereum, no single protocol should account for the majority of ETH staking. He argues that such dominance combined with Lido’s governance structure has the potential to be a dangerous concentration point.
Furthermore, the proposal was formed on the belief that other liquidity staking protocols would also limit their exposure. This allows smaller protocols to meet supply shortages.
What does Lido dominating staking mean for ETH 2.0?
Ethereum’s transition to PoS means that the network will rely on validators to validate transactions on the blockchain, which is completely different from a PoW blockchain that requires miners to expend a lot of energy to solve math problems. complex learning.
However, to operate a validator node, users must deposit 32 ETH – a dilemma for many. On the other hand, as a staking provider, Lido allows users to bypass this requirement and earn staking rewards.
According to data from Etherscan, around 12.6 million ETH has been staked in ETH 2.0, representing 10.6% of the circulating supply of ETH. Among them, 73,369 stakers have staked around 4.2 million via Lido, making Lido the most used staking pool on Ethereum.
This means that if Ethereum transitions to PoS and Lido still dominates staking, the DeFi platform will have a huge impact on transaction verification that many warn could pose a risk. Some of the concerns include validator penalties, governance attacks, and smart contract mining attacks.
On the other hand, Lido dominates staking which can help prevent a centralized exchange from taking over and ensure the blockchain remains decentralized.
stETH continues to lose its peg
stETH (supposedly pegged to ETH) is still losing its peg after a massive sell-off. There is a lot of speculation about the security of the token and whether the loss of the peg could cause more chaos for the crypto ecosystem.
On June 16, Alameda Capital, one of the largest stETH holders, dumped $57 million in stETH. The event coincided with the successive financial troubles of Celsius and Three Arrows Capital, both of which are large stETH holders.
As of press time, stETH has not yet rallied on par with ETH and is trading at $1,172.
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