Home CryptocurrencyAltcoin 64% of ETH is controlled by five entities — Nansen

64% of ETH is controlled by five entities — Nansen

by SuperiorInvest

A report from blockchain analytics platform Nansen highlights five entities that hold 64% of the staked Ether (ETH) ahead of Ethereum’s highly anticipated merger with the Beacon chain.

Ethereum’s shift from proof-of-work to proof-of-stake is set to take place in the following days after the latest updates and shadow forks have been completed at the beginning of September. A key part of The Merge are miners who are no longer used as validators, instead they are stakers who pledge ETH to maintain the network.

The Nansen report highlights that just over 11% of the total ETH in circulation is staking, with 65% liquid and 35% illiquid. In total, there are 426,000 validators and approximately 80,000 depositors, with the report also highlighting a small group of entities that control a significant portion of the ETH staked.

The top three cryptocurrency exchanges account for nearly 30% of the ETH staked, namely Coinbase, Kraken, and Binance. Lido DAOthe largest Merge staking provider, accounts for the largest amount of ETH staked with a 31% share, while a fifth unmarked group of validators holds 23% of ETH staked.

Lido and other decentralized on-chain liquid staking protocols were originally set up as a counter-risk to the centralized exchanges that accumulate most of the ETH staked, given that these firms must comply with jurisdictional regulations.

Related: Experts weigh in on Ethereum’s post-merger vulnerabilities: Finance Redefined

The Nansen report highlights the need for Lido to be decentralized enough to remain censorship-resistant. Data from onchain shows that ownership of the Lido Management Token (LDO) is concentrated, with groups of large token holders potentially bearing the risk of censorship.

“For example, the top 9 addresses (excluding treasury) hold ~46% of the administrative power, and proposals are usually dominated by a small number of addresses. The stakes for proper decentralization are very high for an entity with a potential majority stake in ETH.”

Nansen also admits that the LIDO community is actively seeking solutions to the potential risk of over-centralization, with initiatives proposed involving dual governance as well as a legally and physically distributed set of validators.

Due to the continued decline in the crypto markets, most of the ETH staked is currently out of profit – down ~71%. Meanwhile, 18% of all ETH staked are held by illiquid stakers who are profitable.

Nansen suggests that this category of punters will most likely sell their ETH once withdrawals are allowed in the Shanghai update. However, fears of a major sell-off in The Merge are unfounded, as ETH withdrawals will only be possible for six to 12 months after The Merge.

“Even then everyone can’t withdraw their deposit at once because there is an exit queue for validators similar to an activation queue of about six validators (typically 32 ETH each) per epoch (~6.4 min).”

Nansen notes that if all validators withdrew their staked ETH and stopped being validators, it would take about 300 days with over 13 million ETH staked.

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