A report by JPMorgan suggests that Ethereum’s recent surge in ether (ETH) staking, driven by the Merge and Shanghai upgrades, has raised concerns about centralization and reduced overall staking yields.

While decentralized alternatives like Lido’s liquid staking platform exist, Ethereum’s increasing centralization poses risks to the network’s security and decentralized nature.

Analysts led by Nikolaos Panigirtzoglou note that many in the crypto community consider Lido, a decentralized liquid staking platform, as a better alternative to the centralized platforms associated with exchanges.

However, the report highlights the risks associated with centralization, such as the potential for a few liquidity providers or node operators to act as single points of failure, become vulnerable targets for attacks, or form detrimental oligopolies.

The rise of liquid staking also introduces the risk of rehypothecation, where liquidity tokens are used as collateral across multiple DeFi protocols simultaneously. This could lead to cascading liquidations in the event of asset devaluation, hacking, or protocol errors.

The report also points out that increased staking activity has reduced the attractiveness of ether in terms of yield, especially when compared to rising yields in traditional financial assets.

Ethereum’s Real Yield

Ethereum’s total staking yield has decreased from 7.3% before the Shanghai upgrade to approximately 5.5%, reflecting the changing landscape of crypto investments amid evolving market dynamics.

According to YCharts, the yield rate for 2-year US treasuries has risen to over 5%, aligning with rising interest rates overall.

To participate in staking, one must hold 32 ETH ($52,000) to set up a staking node. Users with fewer holdings can access ETH staking through centralized providers, who manage the financial and technical aspects in exchange for a portion of the profits.

Lido is currently the largest of these providers, controlling 8.9 million ETH out of the total 30.7 million ETH locked in the network’s staking contract.

Glassnode reports that centralized firms including Coinbase, Kraken, and Binance collectively control over 5 million staked ETH.


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