The Ethereum merger has been successfully completed and the network has been operating on a proof-of-stake mechanism for about a week now. The success of the upgrade was hailed by many community members who praised the ingenuity and innovation of Ethereum developers. However, it seems that the more time Ethereum spends as a proof-of-stake network, the more problems with decentralizing the network arise.
Is Ethereum too centralized?
The months leading up to the Ethereum merger had seen an increase in validators on the network. Since it takes a total of 32 ETH and some technical know-how to become a validator on the network, many investors have opted to use pools to stake their ETH and earn rewards on the network. This has now led to most validators coming from a handful of operators.
Just days after the merger was completed, some crypto industry players raised the alarm about the centralization of the Ethereum network. According to reports, the network is now even more centralized than when it was a proof-of-work network.
Of the nearly 14 million ETH that are currently staked on the network, nearly 5 million ETH comes from the decentralized protocol Lido Finance alone. The wider it gets, the more alarming Ethereum centralization becomes. A total of 5 stakers currently control over 60% of all validators on the Ethereum network. This leaves only around 36% of all ETH staked to all other stakers in the space.
ETH stakers raise centralization concerns | Source: Arcane Research
Even though stakers are not able to gain more voting power by holding more than 32 ETH, they are able to spread their ETH across multiple validators. This gives a handful of bettors immense voting power on the network. Hence the concerns about the deeply centralized nature of the network after the move to proof-of-stake.
Nearly 14 million ETH
Despite what appears to be an overly centralized network, staking on the Ethereum network has not slowed down by any metric. It continues to grow and is now very close to crossing the 14 million mark. With over 13.8 million ETH already staked11.5% of ETH supply is now locked on the network.
ETH falls to mid $1,300s | Source: ETHUSD on TradingView.com
Concerns have been raised about large-scale dumping that would occur after the merger, but since the withdrawal feature was excluded from the merger, stakers are still unable to withdraw their ETH for the foreseeable future.
The developers also said that no withdrawal protocols will be introduced for the Ethereum network for at least another six months, which means that 11.5% of the total supply is expected to remain locked until at least the first quarter of 2023. investment given that so much of its supply is currently out of service.
Featured image from Coinbase, charts from Arcane Research and TradingView.com
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