The rise of Ethereum staking since major network upgrades, the Merge and Shanghai, has come at the cost of higher centralization and lower staking yields, a new report by JPMorgan said.<\/p>\n
JPMorgan analysts, led by senior managing director Nikolaos Panigirtzoglou, issued a new investor note on Oct. 5, warning about the risks stemming from Ethereum\u2019s growing centralization.<\/p>\n The top five liquid staking providers: Lido, Coinbase, Figment, Binance and Kraken, control over 50% of staking on the Ethereum network, JPMorgan analysts noted in the report, adding that Lido alone accounts for almost one-third.<\/p>\n The analysts mentioned that the crypto community has seen the decentralized liquid staking platform Lido as a better alternative to centralized staking platforms associated with centralized exchanges like Coinbase or Binance. However, in practice, \u201ceven decentralized liquid staking platforms involve a high degree of centralization,\u201d JPMorgan\u2019s report said, adding that a single Lido node operator accounts for more than 7,000 validator sets or 230,000 Ether (ETH<\/a>).<\/p>\n These node operators get selected by Lido\u2019s decentralized autonomous organization (DAO), which is controlled by a few wallet addresses, \u201cmaking Lido\u2019s platform rather centralized in its decision making,\u201d the analysts wrote. The report mentioned a case when Lido\u2019s DAO rejected a proposal<\/a> to cap the staking share at 22% of Ethereum\u2019s overall staking to avoid centralization.<\/p>\n \u201cLido didn\u2019t participate in the initiatives as its DAO rejected the proposal by an overwhelming majority of 99%,\u201d JPMorgan analysts wrote, adding:<\/p>\n \u201cNeedless to say that centralization by any entity or protocol creates risks to the Ethereum network as a concentrated number of liquidity providers or node operators could act as a single point of failure or become targets for attacks or collude to create an oligopoly […]\u201d<\/p><\/blockquote>\n Apart from higher centralization, post-Merge Ethereum is also associated with an overall staking yield decline, JPMorgan noted. The standard block rewards declined from 4.3% before the Shanghai upgrade to 3.5% currently, the analysts wrote. The total staking yield has declined from 7.3% before the Shanghai upgrade to around 5.5% currently, the report added.<\/p>\n Related: <\/em><\/strong>Time to \u2018pull the brakes\u2019 on Ethereum and rotate back to Bitcoin: K33 report<\/em><\/strong><\/a><\/p>\n JPMorgan analysts aren\u2019t the only Ethereum observers who have noticed a significant increase in network centralization following the Merge upgrade. Executed on Sept. 15, 2022<\/a>, the Merge has been seen as a major impediment to Ethereum\u2019s decentralization and a major reason for dropping yields.<\/p>\n you are the yield pic.twitter.com\/ONJT6QmDch<\/a><\/p>\n \u2014 Pledditor (@Pledditor) October 5, 2023<\/a><\/p><\/blockquote>\n Ethereum co-founder Vitalik Buterin<\/a> has admitted that node centralization is one of Ethereum\u2019s main challenges. In September 2023, he said that finding a perfect solution to handle this problem\u00a0may take another 20 years<\/a>.<\/p>\n Magazine: <\/em><\/strong>Blockchain detectives \u2014 Mt. Gox collapse saw birth of Chainalysis<\/em><\/strong><\/a><\/p>\n<\/div>\n![](\"https:\/\/s3.cointelegraph.com\/uploads\/2023-10\/c2c12813-31bb-414f-acef-735797aac2e1.png\")
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