19 Sep 2022

Ethereum staking is highly centralized but voting power less so

Ethereum staking is facing scrutiny for being overly centralized. The data shows that staked ether is highly concentrated to a small set of large depositors but doesn’t equate to the same centralization of voting power.
Staking depositors 169.svg
As of Sep 20, there are close to 14 million ether staked on the Beacon chain, equaling 11.5% of the total ether supply. Each Ethereum validator node doesn't gain voting power when surpassing the minimum validator requirement of 32 ether. The validator set, therefore, becomes large in numbers as single entities will spread staked ether on multiple validator nodes. In terms of centralization, the interesting statistic is how many validators are controlled by single entities. Scratching the surface by looking at staking depositors, Ethereum voting power appears to be highly centralized. The five largest stakers have deposited more than 60% of the staked ether.
Staking depositors
Source: Dune Analytics
The single largest depositor is Lido Finance, having deposited a whooping 30% of the staked ether. Lido's voting power is spread across many independent validators, making Ethereum's voting power less centralized than at first glance.Lido Finance is a DAO where you can stake ether through a smart contract. In return for staking ether through Lido's smart contract, you receive an ERC20 token called liquid staked ether, proportional to your staked ether. Unstaking and withdrawing rewards from the Beacon chain are not available at the current time. And this feature is not imminent in the nearest future. The liquid staked ether token is a claim on the staked ether when unstaking and rewards withdrawal is enabled. In the meantime, the liquid staked ether token can be traded as any other token. Staking while not locking up your funds has shown to be popular making Lido Finance the biggest staker on the Ethereum Network. Lido Finance does, however, not handle the validator duties themselves. Instead, the DAO chooses validators to govern the staked ether for them. Through a smart contract, the chosen validators gain voting power from Lido's chest of ether.
Validator spread
As shown in the above figure, a multitude of node operators handle Lido's validator duties. In principle, Lido has no power over these validators making the voting power from Lido's staked ether spread among many independent operators.
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