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Ethereum Is Now in Control of Only Two Entities

Fri, 09/16/2022 - 10:33
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Arman Shirinyan
Ethereum's decentralization is in danger after fundamental update goes live
Ethereum Is Now in Control of Only Two Entities
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Decentralization has always been the key to the whole blockchain and cryptocurrency industry and, with the Merge update, the second biggest network in the industry has potentially become more centralized.

Coinbase and Lido are in control

According to the staking rating of the network, only two entities control almost 50% of the whole network, which is an unhealthy redistribution of staking power. The only positive thing in the ranking is the fact that the biggest Ethereum shareholder is Decentralized Autonomous Organization Lido.

Ethereum staking
Source: Ethereum Explorer

Lido allows anyone to join its DAO and become a part of the biggest entity on the Ethereum network, which technically makes the biggest Ethereum holder decentralized. The second biggest holder is Coinbase exchange with more than a 14% share.

Technically, 14% should not be enough to cause any serious decentralization issues on the network. However, the distribution of funds among centralized exchanges stimulates a lot of questions about the stability of the proposed PoS model.

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Six centralized exchanges have a relatively large proportion of dominance on the Ethereum network. Since exchange inflows today remain at a relatively low level, the proportion of controlled Ethereum will be at a lower percentage than in periods similar to the 2021 bullrun.

ETH's poor price performance

Potential problems with regulators and issues with decentralization could be the main reasons behind the most recent short-term plunge that led to a 10% loss in the last 24 hours. As SEC chair Gary Gensler stated, Ethereum now has a structure similar to a security with its shareholders.

Thanks to the staking mechanism, the SEC may apply security laws to Ethereum, which creates additional risks for investors.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.