Community Concerns Rise as Lido Finance Approaches 33% of Total ETH Staked

In just a few days, Lido Finance is set to reach the milestone of 33% of the total ETH staked on the network. This detail has been consistently highlighted by the Ethereum community, accompanied by concerns over network risks.

Community Concerns Rise as Lido Finance Approaches 33% of Total ETH Staked. Image: The Block

The latest figures show that Lido Finance's ETH staking share currently stands at 32.4% of the total market share. This number approaches the 33% threshold, approximately one-third of the network.

However, this is not the first time Lido Finance has approached the 33% mark. In March 2023, data even recorded this liquid staking platform exceeding 33%. Yet, debates surrounding the stake ratio have intensified at the current juncture, amidst significant market changes.

During this period, LDO token has also seen rounds of unlocking, bringing the circulating supply close to 99.97%. This implies that LDO tokens could potentially accumulate in the market, influencing and governing Lido DAO.

Community-discussed solutions to mitigate the concentration risk posed by LDO tokens, such as the Dual Governance model, have been brought up. However, as of now, there have been no notable updates or a roadmap for this plan.

In a chat segment within the Reflexer community, the developers behind the stablecoin RAI, Vitalik Buterin, expressed support for a new stablecoin model with less governance. Additionally, the Ethereum co-founder encouraged support for liquid staking solutions that do not dominate a high percentage of stakes (excluding stETH) to minimize centralization effects.

Discussions regarding Lido becoming a "Too Big to Fail" protocol have also sparked extensive debate.

Frax Finance founder (another project focusing on Liquid Staking) tweeted:

"I also promise not to operate more than 22% of Ethereum validators in my basement."
In conclusion, the concentration of 33% of total ETH staking within a single entity, with LDO governance tokens having a market cap of approximately $1.5 billion, raises community concerns about a potential Reorg event and more seriously, long-term chain splits.

Previously in May 2022, the Beacon Chain network also witnessed a Reorg event before transitioning to Proof-of-Stake with The Merge upgrade.

However, many argue that influencing the network with a 33% stake is unlikely, but it could affect the blockchain's reputation and decentralized spirit (the distinguishing factor of this market from traditional tech sectors).

As usual, these opinions continue to attract vehement opposition. Overall, whether Lido's influence is ultimately negative or positive remains undecided. Therefore, the current focus should be on implementing newer updates in model design to mitigate unwarranted risks.