Decentralization is an extremely sensitive topic for cryptocurrency enthusiasts as it is the backbone of the whole blockchain industry, and if one of the biggest ecosystems on the whole market is not properly decentralized, it may cause some serious problems. Delphi Digital highlights an important problem that Ether has with decentralization.
Usually, the composition of holders is the go-to metric for determining a network's decentralization and health. However, in the case of Ethereum, staking is just as important as the distribution of funds. According to Delphi, only four entities manage almost all of the network's staking, and the biggest of them have some systematic issues with decentralization.
Lido Finance remains the biggest staker on the network, but its underlying system of redistributing stETH tokens has some critical flaws. After delegating "real" coins to Lido, investors receive liquid stETH tokens that they can trade while having Ethereum in locked contracts. However, there is a problem.
If you are an investor willing to withdraw your Ethereum from Lido's contracts, you simply will not be able to do so as no ETH has been unlocked from contracts, which raises a lot of concerns among investors.
The other stakers on the network are centralized cryptocurrency exchanges that either use the funds of investors who willingly delegate their assets for staking or use their funds in order to redistribute and diversify their holdings.
Additionally, Ethereum has been going through a tough year with the number of OFAC-compliant blocks reaching new highs, making the network more centralized. However, with the incentives that Ethereum developers and MEV relays have implemented, the network should become less regulated as time goes by.