New report by Nansen delves into the distribution of staked ETH, respective holders and potential ramifications as The Merge looms.
Ethereum’s shift from proof-of-work to proof-of-stake is ready to happen within the coming days after final updates and shadow forks have been accomplished in early September. The important thing element of The Merge sees miners now not used as validators, changed by stakers that commit ETH to maintain the community.
Nansen’s report highlights that simply over 11% of the overall circulating ETH is staked, with 65% liquid and 35% illiquid. There are a complete of 426,000 validators and a few 80,000 depositors, whereas the report additionally highlights a small group of entities that command a good portion of staked ETH.
Three main cryptocurrency exchanges account for practically 30% of staked ETH, particularly Coinbase, Kraken and Binance. Lido DAO, the Biggest Merge staking provider, accounts for the largest amount of staked ETH with a 31% share, whereas a fifth unlabelled group of validators holds 23% of staked ETH.
Lido and other decentralized on-chain liquid staking protocols have been initially set up as a counter-risk to centralized exchanges accumulating nearly all of staked ETH, provided that these corporations are required to adjust to jurisdictional rules.
Nansen’s report stresses the necessity for Lido to be sufficiently decentralized to stay proof against censorship. Onchain data shows that ownership of Lido’s governance token (LDO) is concentrated, with teams of large tokenholders potentially carrying censorship threats.
“For instance, the highest 9 addresses (excl. treasury) hold ~46% of governance energy, and a small variety of addresses sometimes dominate proposals. The stakes for correct decentralization are very high for an entity with a possible majority share of staked ETH.”
Nansen also concedes that the LIDO group is actively looking for options to the potential threat of over-centralization, with initiatives together with twin governance in addition to a legally and bodily distributed validator set proposed.
Given the continuing stoop in cryptocurrency markets, nearly all of staked ETH is at the moment out of profit – down by ~71%. In the meantime 18% of all staked ETH is held by illiquid stakers which might be in-profit.
Nansen suggests that this class of stakers is the probably to promote their ETH as soon as withdrawals are enabled on the Shanghai improve. Fears of a significant sell-off at The Merge are unwarranted, though, as ETH withdrawals will only be possible 6 to 12 months after The Merge.
“Even then, not everybody can withdraw their stake at once as there may be an exit queue in place for validators similar to the activation queue of round six validators (usually 32 ETH each) per epoch (~6.4 min).”
Nansen notes that if all validators withdrew their staked ETH and stopped being validators, this could take around 300 days with over 13 million ETH staked.
The blockchain and analytics platform announced the launch of a new research and education arm alongside its Merge report, geared toward marrying its on-chain data analytics with masterclasses and analysis papers. Nansen Analysis Portal may also publish industry-expert analysis reviews from various companions within the blockchain and cryptocurrency industry.