JPMorgan: Ethereum Is Now ‘More Centralized’ with Staking Surge

It has been just revealed that accoridng to the experts working at JPMorgan, ETH is now a more centralized coin. Check out the latest reports about this below.

JPMorgan analysts, led by Nikolaos Panigirtzoglou, have reported that Ethereum’s growth in staking has resulted in a more centralized network and a decrease in staking yield.

The Merge upgrade in September 2022 allowed for staking as Ethereum shifted from a proof-of-work to a proof-of-stake blockchain.

The subsequent Shanghai upgrade in April 2023 allowed for staked ether to be withdrawn and reinvested, resulting in a surge in staking.

However, this increase has come at a cost, as the network has become more centralized and overall staking yields have declined.

According to JPMorgan analysts, the majority of growth in staking on the Ethereum network can be attributed to liquid staking providers like Lido.

In fact, the top five liquid staking providers control over half of the staking on the network, with Lido accounting for almost one-third.

However, these decentralized platforms still involve a significant degree of centralization, which poses risks to the Ethereum network.

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 that prioritizes their own interests over those of the community.

This could include censoring certain transactions or front-running on end users’ transactions.

The analysts have identified a potential issue with the increasing popularity of liquid staking, aside from centralization.

This issue is called rehypothecation, where liquidity tokens are utilized as collateral on multiple DeFi protocols at the same time.

If a staked asset experiences a significant decline in value, or if it is hacked or slashed due to a malicious attack or a protocol error, this practice could result in a chain reaction of liquidations.