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Ethereum staking platforms suspected of cartel collusion

Ethereum staking platforms suspected of cartel collusion

Major staking protocols, such as Lido, accumulate large amounts of coins, thus threatening the network's centralization.

According to Ethereum developer Danny Ryan, Lido serves as a case in point, offering liquid stacking and the option to deploy less than the 32 ETH needed to run a full node on the Beacon Chain network. The protocol has its own token called stETH. It can be used in other DeFi-protocols in order to get extra income. 

However, the developer believes that once coins are concentrated on a single platform, the risk of a centralized attack on the network will increase following the switch to a proof-of-stake consensus algorithm.

Ryan warned there could be problems if the liquid protocol for staking crosses consensus-critical marks, such as 1/3, 1/2, and 2/3.

"In the extreme, if an LSD protocol exceeds critical consensus thresholds such as 1/3, 1/2, and 2/3, the staking derivative can achieve outsized profits compared to non-pooled capital due to coordinated MEV extraction, block-timing manipulation, and/or censorship – the cartelization of block space”.

"If that happens, stakeholders won't stand to allocate coins elsewhere because of over-inflated cartel profits," he added. The developer advised Lido and similar protocols to "put limits on staking on their own," and those who allocate capital should consider the risks associated with pools.

Lido is already somewhat centralized. Earlier this year, the protocol received funding from several venture capital firms, including Andreessen Horowitz.

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