Ethereum Liquid Stakers Propose Self-Limit Rule to Preserve Network Decentralization

Ethereum Liquid Stakers Propose Self-Limit Rule to Preserve Network Decentralization

Five Ethereum Liquid Staking Providers Move Towards a Self-Limit Rule

Five prominent Ethereum liquid staking providers are taking steps toward enacting a self-imposed rule whereby they vow not to control more than 22% of the Ethereum staking market. Viewed as a strategy for preserving the decentralization of the Ethereum network, this move involves well-known providers such as Rocket Pool, StakeWise, Stader Labs, Diva Staking, and Puffer Finance. This was revealed by Ethereum’s core developer, Superphiz.

The 22% Self-Limit: A Strategy to Ensure Decentralization

It's presumed that this move, which pegs the self-limit at 22%, is intended to dispel worries about the growing centralization of Ethereum staking. Superphiz elucidated that, with 66% of validators needed to agree on the Ethereum state, a limit set below 22% ensures that at least four major entities are required to collude for chain finalization. Blockchain finality refers to the stage where transactions are deemed irreversible, thereby making sure that transactions within a block can't be altered.

Lido Finance Votes Against the Self-Limit Proposal

However, not everyone supports this self-limit rule. Lido Finance, the current leader in Ethereum liquid staking, voted overwhelmingly against self-imposing a limit earlier in June. In an August post, Superphiz claimed that Lido harbors ambitions to control the majority of validators on the beacon chain. As it stands, Lido owns a massive 32.4% of the total staked Ether, while the closest competitor, Coinbase, only accounts for 8.7% of the market, citing data from Dune Analytics.

Ethereum Community’s Mixed Response to Self-Limit Proposal

The Ethereum community gave a mixed verdict on this self-limit proposal. One commentator, “Mippo”, stressed that the proposal has nothing to do with Ethereum alignment, which is supposed to facilitate neutrality and permissionless innovation on Ethereum. Mippo claimed those promoting the proposal would hardly give way if they were in Lido’s shoes. Nevertheless, some community members expressed concerns about the centralisation risk, branding Lido’s market dominance as "selfish and disgusting."