59% of staked ETH controlled by four providers

The good news for Ethereum investors is that the merger went smoothly. Ethereum is now a Proof-of-Stake blockchain, which means up to 99.95% less power consumption.

But it’s not all fun and games. The problem of centralization is a problem that is the subject of many discussions. When you hop on the channel and look at the stats, it highlights just how much of a problem this is.

To explain the problem in simple terms, in order to become a validator on the Ethereum network, now that mining has become obsolete after the merger moved the blockchain to Proof-of-Stake, an investor must hold at least 32 ETH .

This is obviously a big move – representing $42,000 at the time of writing – and therefore unattainable for the majority of investors. In fact, the on-chain data below shows that there are only 122,000 wallets that hold more than 32 ETH. That’s out of 86 million non-zero wallets.

So, enter the staking pools.

By locking their funds with a third party, investors can join pools with as little ETH as they want, with the third party pooling the funds to act as a validator. It’s like buying shares in a company – you don’t own the whole company, but you get a percentage of the profits.

The only problem is that these third parties then control huge amounts of the network.

In fact, the concentration of assets on four largest staking pools shows the problem. Out of the total 13.7 million ETH currently staked, we find 4.2 million via Lido, 1.9 million via Coinbase, 1.1 million via Kraken and 0.9 million via Binance. This represents 59% of the total value at stake through these four vendors alone.

The data simply explains why some fear that the merger towards proof-of-stake has led to greater centralization of the Ethereum network. Because in truth, it is – and it’s hard to argue otherwise with the numbers presented above.

It is disconcerting to think about what could happen if any of the above providers suddenly ceased performing their staking duties, for whatever reason. Maybe some kind of corporate scandal, or some regulatory reason (remember Tornado Cash) or some other unpredictable event.

With so much ETH being staked by these vendors, this is immense value – and a key and central source of risk for the entire Ethereum blockchain.