Lido staking ratio approaches 32%, official initiates vote: Should Lido self-limit?

Lido's dominant position in Ethereum staking has continued to rise after surpassing 30%, prompting the official team to initiate a community vote to decide whether to lower the staking ratio.

Lido Emerges as Leader in Ethereum Staking Services

Lido Finance, as a decentralized Ethereum staking service provider, allows users to stake ETH and receive staked tokens called "stETH," which can be used for various purposes such as trading, collateral for loans, and providing liquidity on AMM platforms.

However, concerns have been raised as Lido's dominance continues to grow, including since May:

• Imbalance between stETH and ETH, potentially leading to a liquidation crisis.
• Centralization issues affecting the overall network health.

Ethereum Team's Perspectives

Prior to this, superphiz.eth, a security consultant in the Ethereum beacon chain community, suggested that staking service providers should limit their validation stake to below 22% to prioritize the overall health of the beacon chain over profits.

Ethereum's founder, Vitalik Buterin, also mentioned that the percentage of a single validator entity should be restricted through fee rates, for example, capped at 15%.

Lido: Should It Self-Restrict?

Lido initiated a governance proposal on 6/24 for a vote, with over 99.9% currently opposing self-restriction by Lido. The voting is set to end on 7/1 at 17:00 Taiwan time.

An analysis article summarizes both sides of the argument, including opinions from Ethereum developers like Superphiz, Danny Ryan, and the founder, Vitalik, all suggesting stake limits of 15%, 22%, 33%, and so on. Regardless of Lido's decision on self-restriction, the following potential concerns remain:

If Lido does not self-restrict:

• It becomes advantageous for governance attacks on Lido, for example, granting specific node operators the ability to extract significant MEV.
• There is no guarantee that Lido holders are willing to reduce Ethereum's potential governance power.
• The continuous growth of stETH before merging may lead to systemic risks.

If Lido self-restricts:

• There is no assurance that exchanges and stakers would also be willing to restrict themselves.
• The rise of centralized exchanges and stakers poses a greater threat to Ethereum.
• Dependence on the rise of other decentralized staking protocols such as Rocket Pool.

In April, Lido emphasized the protocol's ideology:

The core reason we launched the Lido protocol is to prevent central entities or exchange groups from dominating the Ethereum staking market.

Experienced DeFi trader DegenSpartan is particularly interested in Lido's self-restriction proposal, as he mentions that Ethereum enthusiasts have an irrational desire for decentralization in all aspects.

In the proposal, those in favor of Lido's self-restriction are non-token holders or token holders of other staking protocols who are not actually invested in the Lido project.

At the time of writing, Lido's staking percentage has reached 31.89%.