NewsNansen Report: How decentralized is Ethereum?

Nansen Report: How decentralized is Ethereum?

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Five entities own 64% of staked ETH, according to a recent report by blockchain analytics platform, Nansen.

It further notes that just over 11% of the total ETH in circulation has been staked, while there are 426,000 validators and around 80,000 addresses that have deposited ETH. In addition, the report notes that a small group of entities hold a significant portion of the total staked ETH.

Three major exchanges account for 30%

Three major cryptocurrency exchanges hold nearly 30% of the total ETH that has been staked: Coinbase, Kraken and Binance.

Also, Lido DAO, the largest provider of staked ETH on the occasion of the Network Merger, accounts for the largest amount of staked ETH, with a 31% share, while a fifth group of validators – unnamed – together hold 23% of the ETH that has been staked.

The role of LIDO

Lido and other decentralized staking protocols were originally created as a protection from the centralized exchanges that aggregate the bulk of staked ETH, as these companies must comply with jurisdictional regulations.

Nansen’s report highlights the need for Lido to be decentralized enough to remain resilient to centralized control. The in-chain data shows that Lido’s governance token ownership (LDO) is concentrated, with groups of large token holders carrying potential risk to exert centralized control.

“FOR EXAMPLE, THE TOP 9 DIRECTORATES (EXCLUDING THE MINISTRY OF FINANCE) HOLD ~46% OF GOVERNANCE POWER AND A SMALL NUMBER OF DIRECTORATES TYPICALLY DOMINATE PROPOSALS. The staked ETH ARE TOO HIGH FOR AN ENTITY TO HOLD TO HAVE PROPER DECENTRALIZATION AND THERE IS A POTENTIAL MAJORITY SHARE OF STAKED ETH” THE REPORT POINTS OUT.

Nansen highlights that the LIDO community is looking for solutions to the potential risk of over-concentration or centralized control.

How much is in profit and the prospect of takeovers

Given the ongoing downturn in cryptocurrency markets, the majority of staked ETH is currently out of profit, down ~72%. Meanwhile, 18% of all staked ETH is in profit.

Going a step further, Nansen notes that this class of players is the most likely to sell their ETH once withdrawals are activated during the “Shanghai” upgrade:

“EVEN THEN, NOT EVERYONE CAN WITHDRAW THEIR STAKED ETH IMMEDIATELY, AS THERE WILL BE A PRIORITY ORDER FOR VALIDATORS.”

Indeed, Nansen notes that if hypothetically all validators withdrew their staked ETH and ceased to be validators, this process would take around 300 days with over 13 million ETH already staked.

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