A cryptocurrency project is coming under criticism. It is all because of potentially taking too much control of the network as it undergoes a closely-watched software upgrade. The DeFi, or decentralized finance, platform Lido Finance has become the largest provider of staking services for Ethereum. The article, titled The Risks of LSD (Liquid Staking Derivatives), suggests that all Ether stakers set a threshold limit. It warns that because of the inherent dangers of concentration, investors should restrict their exposure to the protocol. According to the article, if an entity gains control of the distributed ledger, it can tamper with the recording of blocks.
The concentration of more than 4 million Ether deposited through Lido, or 32 percent of the total amount staked in the token, raises warning flags.
Developers of the Lido are in disagreement
Not everyone feels that staking entities should minimize their exposure. A Lido developer said that the protocol exists to decentralize Ether staking. It tends to prevent centralized exchanges from dominating the market.
The Lido website claims that it employs 21 validators. The majority of centralized exchanges do not give this level of openness. Presently, Lido is the biggest provider of staking services on Ethereum. Although several centralized exchanges such as Kraken, Coinbase, and Binance also offer this service. Lido has 32% of the total tokens staked.
Because the majority of staking power would be concentrated, Lido’s staking supremacy could lead to a centralized attack on the network when it converts to proof-of-stake consensus. Lido passing 1/3 is a centralization attack on PoS.
