Ethereum (ETH) liquid staking providers are working on or have imposed a self-limit rule of not owning more than 22% of the staking market.
The masses currently believe that this initiative was taken in hopes of ensuring that the Ethereum network continues to stay decentralized. Some of the staking providers that have committed or are currently working on the limit rule include Rocket Pool, StakeWise, Stader Labs, and Diva Staking. Following the publicity of his news, another liquid staking service, Puffer Finance, also announced its commitment to the self-limit rule.
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
It is believed that the proposal aims to address the increasing concerns of Ethereum staking adopting a centralized approach. It was explained that the main reason for setting a 22% limit was the fact that 66% of the validators had to agree on the state of Ethereum. Setting the limit at that mark would suggest that a minimum of four entities must collude in an effort for the chain to reach finalization. Finality is deemed to be the point where transactions on a blockchain are considered immutable, suggesting that these transactions cannot be altered.
The Proposal Receives Mixed Reactions from the Ethereum Community
The idea was proposed back in 2022 when a question arose whether a staking pool would be willing to prioritize the health of the chain over its own profits. However, the largest Ethereum liquid staking provider, Lido Finance, voted by a majority of 99.81% not to self-limit in June. Lido currently dominates the Ethereum staking market accounting for almost 32.4% of all staked Ether. Coinbase, on the other hand, accounts for only 8.7% of the entire market.
Following the announcement of the proposal, several analysts argued that the self-limit proposal does not really have anything to do with Ethereum alignment. This principle is widely understood throughout the crypto space to enable credible neutrality as well as permissionless innovation on Ethereum.
Furthermore, analysts argued that people in the ETH community have no reason to shame and point out all user-friendly solutions as greedy products. Other analysts were increasingly concerned about the potential issue of centralization and claimed that the market share dominance of Lido Finance was not only selfish but also quite disgusting.