JPMorgan has sounded the alarm on the growing centralization and dwindling staking profits in Ethereum post the Merge and Shanghai interventions.
Their research suggests that the uptick in ether (ETH) staking is nudging the network towards centralization, trimming staking dividends in the process.
Interestingly, many crypto enthusiasts are leaning towards Lido, a decentralized staking platform, as a more robust option compared to its centralized counterparts tied to mainstream exchanges. Lido is on a mission, bringing on board more node operators to dilute centralization and ensure no single player holds a lion’s share of staked ether.
However, a word of caution from the study: centralization, in any form, is a ticking time bomb for Ethereum. A handful of dominant liquidity providers or node operators can become the network’s Achilles’ heel, opening doors to potential attacks or even conspiracies that could birth an oligopoly, sidelining community interests.
Another red flag by JPMorgan is the phenomenon of rehypothecation. In layman’s terms, it’s when liquidity tokens double-dip, serving as collateral across multiple DeFi platforms. This juggling act can set off a domino effect of liquidations if a staked asset faces a nosedive in value or falls prey to cyber threats or glitches.
To top it off, the allure of ether as a yield magnet is waning, more so with traditional financial assets offering rising returns. The staking yield scoreboard reads a drop from 7.3% pre-Shanghai to a modest 5.5%.