Blockchain and Crypto Validators Agree to 22% Limit

At least five Ethereum liquid staking providers have either already imposed or are working to put in place a self-imposed rule in which they guarantee not to own more than 22% of the Ethereum staking market — viewed as a move to ensure the Ethereum network remains decentralized.

Among the Ethereum staking providers either already committed or in the process of committing to the self-limit rule are Rocket Pool, StakeWise, Stader Labs and Diva Staking, according to Ethereum core developer Superphiz.

Puffer Finance, another liquid staking service, has also declared its commitment to the self-limit.

The proposal is presumably meant to address worries that Ethereum staking is becoming increasingly centralized.

As to why the self-limit was proposed at 22%, Superphiz explained that because 66% of validators need to agree on the state of Ethereum, setting the limit below 22% means at least four major entities must conspire in order for the chain to reach finalization.

Finality is the point where transactions on a blockchain are considered immutable, supposedly ensuring that transactions within a block cannot be altered.

The concept was suggested by Superphiz in May 2022 when he pondered whether a staking pool would be willing to prioritize the health of the chain over its own profits.

Interestingly, the largest Ethereum liquid staking provider, Lido Finance, voted by a 99.81% majority not to self-limit back in June.

“They have expressed an intention to control the majority of validators on the blockchain,” Superphiz said in an Aug. 31 post.

Lido currently dominates the Ethereum staking market, accounting 32.4% of all staked Ether, while the next entity, Coinbase, accounts for only 8.7% of the market, according to data from Dune Analytics.

Who’s in the right? Mixed reactions from the Ethereum community

One industry pundit, “Mippo,” explained on Aug. 31 that the self-limit proposal has nothing to do with “Ethereum alignment” — a principle understood to enable credible neutrality and permissionless innovation on blockchain in web 3.0.

Mippo claimed those trying to push the proposal wouldn’t make way if they were in Lido’s position.

“Everyone is doing the economically selfish and rational thing here,” Mippo concluded.

“Folks in the ETH community should not shame more user-friendly solutions as greedy products,” said another observer regarding chain link crypto.

However, others were more wary of the potential centralization issues at hand, describing Lido’s market share dominance as “disgusting and selfish” when it comes to blockchain and crypto.