Following the Merge and Shanghai upgrades, JPMorgan has raised concern over the centralization and decreased staking yields in the Ethereum network. The bank stated in a study report that more ETH staking has resulted in a more centralised network and a decline in total staking yield.
According to the report, Lido, a decentralized liquid staking platform, is preferred by many members of the cryptocurrency ecosystem over centralized liquid staking platforms linked to centralized exchanges. To address centralization issues and prevent any one operator from owning a significant portion of the staked ether, Lido has been increasing the number of node operators.
The paper stressed that centralization by any organization or protocol poses dangers for Ethereum. A small number of node operators or liquidity providers may become a single point of failure, an easy target for attacks, or they could band together to form an oligopoly that would serve their own interests at the expense of the community.
Rehypothecation, which happens when liquidity tokens are simultaneously utilized as collateral across several decentralized finance (DeFi) protocols, is another concern mentioned by JPMorgan. If a staked asset’s value declines significantly or is hacked or cut as a result of a malicious attack or protocol fault, this could lead to a cascade of liquidations.
From a yield viewpoint, the increase in staking has also made ether less appealing, especially in light of the rising yields in conventional financial assets. Prior to the Shanghai update, the overall staking yield was 7.3%; it is now under 5.5%.