Ethereum Staking Providers Agree to Limit Validators to 22%
Ethereum staking providers limit their market share to 22% to prevent centralization and maintain network decentralization.
Several Ethereum staking providers, including Rocket Pool, StakeWise, Stader Labs, Diva Staking, and Puffer Finance, have committed to capping their market share at 22%. Ethereum core developer Superphiz initially proposed this decision in May 2022. The idea is to maintain a balanced distribution of validators within the Ethereum network, thereby reducing the risk of centralized control.
These providers are committed (or are in the process of committing) to self-limit to <22% of Ethereum validators. This is how our chain will be successful: Coordination above greed. Cooperation instead of winner-take-all.@Rocket_Pool @stakewise_io @staderlabs @divastaking — superphiz.eth ????????????️ (@superphiz) August 30, 2023
The choice of a 22% limit is not arbitrary. It's based on the requirement that 66% of validators must agree on the state of Ethereum for finality to be achieved. By keeping the limit below 22%, it ensures that at least four major entities must collude to potentially jeopardize the finalization process. This is crucial for maintaining trust and preventing transactions from being altered within the blockchain.
While many staking providers have embraced the 22% cap, Lido Finance, the largest Ethereum liquid staking provider, has opted out. A proposal to impose a limit on Lido's maximum stake was put forward, but it received minimal support. In fact, more than 99% of Lido's governance tokens voted against the self-limit rule. Lido Finance currently accounts for 32.4% of all staked Ether, dominating the market.
Ethereum stakers by staking amount and market share
The Ethereum community has had varied reactions to this self-imposed limit. Some argue that such limitations are not necessary for the alignment of Ethereum, emphasizing that everyone is doing the economically rational thing. On the other hand, there are those who express concern over the potential centralization issues, describing Lido's market share dominance as concerning.
Recent data reveals that over 22% of Ethereum's supply is currently staked on the network, with the total number of Ether just below 26.3 million. The number of validators has surpassed 821,600. Despite concerns raised during the Ethereum network's Shanghai upgrade, which allowed the withdrawal of staked ETH, there has been a steady increase in the volume of ETH staked on the network.