Nansen's report on staked ETH distribution before The Merge
In a new report, Nansen details the distribution of staked ETH among holders and possible implications as The Merge approaches.
As Ethereum prepares to merge with the Beacon chain, a new report from blockchain analytics platform Nansen highlights five entities that hold a whopping 64% of staked ETH. This concentration of staked ETH could have significant implications for the Ethereum network going forward, particularly with regard to governance and decision-making.
The long-awaited shift from proof-of-work to proof-of-stake on the Ethereum network is finally set to take place in the coming days. This key change will see miners replaced by stakers, who commit ETH to maintain the network. The move to proof-of-stake is a major change for Ethereum, and it will be interesting to see how it affects the network in the long run.
The report paints a picture of a healthy and growing Ethereum staking ecosystem, with a large and growing number of validators and depositors. However, it also highlights a small group of entities that command a significant portion of staked ETH, which could be a cause for concern in the future.
What does this mean for the Ethereum network? Well first of all, it means that a lot of people are confident in the future of ETH and are willing to put their money into it. This is a good sign for the long-term prospects of the network. Secondly, it means that there is a lot of centralization in terms of who is staking ETH. The top three exchanges account for nearly 30% of all staked ETH, and one other group holds 23%.
Lido and other decentralized on-chain liquid staking protocols provide an alternative to centralized exchanges that may be subject to jurisdictional regulations. These protocols offer a way to earn rewards on staked ETH without having to worry about compliance issues.
As experts weigh in on the recent vulnerabilities surrounding Ethereum, it's clear that the community is still divided on how to best move forward. While some believe that the recent merge of Ethereum and Ethereum Classic is a positive step, others remain skeptical of the move.
Nansen's report makes a strong case for decentralizing Lido to help protect it against censorship. However, data from Onchain suggests that a small number of large token holders could have significant control over the network. This concentration of power could pose a censorship risk for Lido.
“For example, the top 9 addresses (excl. treasury) hold ~46% of governance power, and a small number of addresses typically dominate proposals. The stakes for proper decentralization are very high for an entity with a potential majority share of staked ETH.”
With the LIDO community actively seeking solutions to the potential risk of over-centralization, it is clear that they are committed to ensuring the stability and security of the network. initiatives such as dual governance and a physically distributed validator set show that the community is working hard to protect the interests of all users.
There is no doubt that the current slump in cryptocurrency markets has been tough on everyone involved. However, it is important to remember that even in tough times there are always winners and losers. In this case, the majority of staked ETH is currently out of profit, down by ~71%. Meanwhile, 18% of all staked ETH is held by illiquid stakers that are in-profit.
Nansen's suggestion that stakers are the most likely to sell ETH once withdrawals are enabled at the Shanghai upgrade is unfounded. Withdrawals will only be possible six to 12 months after The Merge, so there is no reason to fear a major sell-off.
“Even then, not everyone can withdraw their stake at once as there is an exit queue in place for validators similar to the activation queue of around six validators (usually 32 ETH each) per epoch (~6.4 min).”
If all validators withdrew their staked ETH and stopped being validators, it would take around 300 days for the Ethereum network to come to a halt. This would result in the loss of over 13 million ETH.
