Ethereum Staking Services Accept 22% Validators Limit Amid Criticism From ETH Community

Published September 1, 2023 11:48 AM

By Teuta Franjkovic

Edited by Giuseppe Ciccomascolo

ETH staking pools reach consensus on 22% ownership limit

Key Takeaways

Some ETH staking service providers agreed to a self-imposed limit.
The limit restricts the amount of the staking market they control.
They promise to hold no more than 22% of the Ethereum staking market.
Potential centralization of ETH liquid staking behind the move.

Ethereum has always been at the forefront of the debate about decentralization and now this is being protected by the adoption of a ground-breaking self-limit regulation by Ethereum staking providers.

The 22% Self-Limit Rule

In order to maintain Ethereum blockchain’s decentralized nature, at least five Ethereum liquid staking providers, including Rocket Pool , Stader Labs , Diva Staking , Puffer Finance , and StakeWise , have either adopted or are actively working to implement a self-limit rule. This regulation limits their ownership to no more than 22% of the Ethereum staking market.

This figure was selected due to Ethereum’s consensus algorithm requiring a 66% validator agreement on the network’s state. This rule mandates the collaboration of at least four major companies for finalizing the chain, making transactions unchangeable by setting the limit at 22%.

Struggling Against Centralization

The Ethereum community has had ongoing concerns about staking service centralization, as indicated by the self-limit proposal presented by Superphiz, an Ethereum core developer, in May 2022 . The main goal is to maintain the network’s decentralized nature by preventing any one entity from obtaining disproportionate influence over it.

These providers are committed (or are in the process of committing) to self-limit to <22% of Ethereum validators. This is how our chain will be successful: Coordination above greed. Cooperation instead of winner-take-all.@Rocket_Pool @stakewise_io @staderlabs @divastaking

— superphiz.eth ???️ (@superphiz) August 30, 2023

Lido Finance Mysteries

The biggest Ethereum liquid staking service, Lido Finance, stands out as an important exception to this trend. According to data from Dune Analytics , Lido has now a commanding 32.4% of all staked Ethereum, leaving Coinbase with just an 8.7% market share.

In an unexpected move, Lido Finance voted against self-limiting in June, with a whopping 99.8% majority.

“They have expressed an intention to control the majority of validators on the beacon chain,” Superphiz said in an August 31 post.

Various Views in ETH Community

The self-limit rule has received a mixed reception from the Ethereum community. Some claim that the rule ignores the Ethereum tenets in favor of concentrating on economic self-interest. They argue that if proponents of the self-limit rule were in Lido’s position of power, they may view things differently.

Easy to commit to self-limit when it seems that most of these will likely never reach 22% market share of Liquid staking on Ethereum.

Folks in the ETH community should not shame more user-friendly solutions as greedy products. https://t.co/65vgti3Jrm

— Neel Daftary (@DaftaryNeel) August 31, 2023

On the other hand, several members of the Ethereum community voiced worries about the risks of centralization posed by Lido’s substantial market share. They call this domination “selfish” and push for measures to maintain the health and decentralization of the larger Ethereum ecosystem.

Yeah because they have way less market share than that now… easy to chirp from the cheap seats.

This has nothing to do with “Ethereum alignment.” None of these teams would self limit were they in Lido’s place.

Everyone is doing the economically selfish and rational thing…

— Mippo ? (@MikeIppolito_) August 31, 2023

The debate over Ethereum’s decentralization will persist as it evolves. The 22% self-limit rule is a significant step in striking a balance between market growth and network decentralization.

It underscores the Ethereum community’s commitment to preserving decentralization for impartiality and permissionless innovation on the platform.

The Ethereum community’s commitment to decentralization is demonstrated by its acceptance of the 22% self-limit rule. This novel strategy aims to protect the fundamental values of the Ethereum platform by preventing any one company from exerting undue control over the Ethereum staking market.

While opinions may vary, it underscores the Ethereum community’s ongoing commitment to striking the right balance between market dynamics and network integrity.

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About the Author

Teuta Franjkovic

Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.

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