Lido now controls 32% of all staked $ETH.

The subreddit r/ethfinance raised some serious concerns over Lido's dominance with ETH staking.

I think we should all be concerned a bit.

Here's why

Lido is the king of $ETH staking.

Some, including me, are worried that Lido’s dominance could threaten Ethereum’s security & censorship resistance.

Vitalik previously recommended that no staking pool should have more than 15% of staked ETH.

Lido has a whopping 32%.

In fact, Lido voted against self-limiting last year, with an overwhelming 99.8% of votes.

There are two concerns I have:

First, Lido’s growth poses a systemic risk to Ethereum if it controls a large fraction of the validators & has the power to censor transactions or fork the chain.

Second, Its dominance would also reduce competition in the liquid staking & LSTfi space, as other protocols would have difficulty attracting users and node operators.

But users that defend Lido argue that it’s not fair to call Lido a single entity. Lido is a decentralized protocol that uses multiple node operators to stake $ETH on behalf of its users.

Lido does not directly control these node operators but by the $LDO governance token.

So Lido is not a monolith but a diverse and distributed network.

I agree with this view.

Lido has done a fantastic job building a secure and scalable staking solution that benefits Ethereum.

I also admire their efforts to decentralize governance and empower $stETH holders.

One of their upcoming features is a dual-token governance system, where stETH holders can veto any proposal passed by the LDO token holders.

This creates a balance of power and aligns the incentives of both groups with Ethereum’s success.

But what if you still think Lido is too big for Ethereum’s good?

How would you go about limiting its market share?

You can’t force Lido to self-limit unless you change the core protocol rules.

That would be very hard to achieve consensus on.

The only realistic option is supporting other staking products competing with Lido, such as Rocket Pool and Frax.

In the end, the market will decide who wins the staking war.

Lido has the edge right now, but things could change in the future.

The challenge for the other players is to prove their worth and challenge Lido’s throne.