Ethereum staking providers commit to 22% self-limit to preserve decentralization

Several prominent Ethereum liquid staking providers have pledged or are in the process of committing to a self-limit rule, promising not to own more than 22% of the Ethereum staking market. This move, announced on Friday, is seen as an effort to ensure the Ethereum network remains decentralized.

Among the Ethereum staking providers that have committed or are working towards the self-limit rule include Rocket Pool, StakeWise, Stader Labs, Diva Staking, and Puffer Finance. The proposal is aimed at addressing concerns about the increasing centralization of Ethereum staking, according to Ethereum core developer Superphiz.

The decision to set the self-limit at 22% is based on the requirement that 66% of validators need to agree on the state of Ethereum for finality, a point where transactions on a blockchain are considered immutable, to be achieved. By setting the limit below 22%, it ensures that at least four major entities must collude potentially to jeopardize the finalization process.

This idea was initially proposed by Superphiz in May 2022 when he questioned whether a staking pool would be willing to prioritize the health of the Ethereum chain over its own profits.

However, Lido Finance, the largest Ethereum liquid staking provider, has decided not to commit to the self-limit rule. Back in June, less than one half of one percent of votes cast were in favor of this rule. Lido currently dominates the Ethereum staking market, accounting for 32.4% of all staked Ether. In contrast, Coinbase (NASDAQ:COIN), the second-largest staking provider, holds only an 8.7% market share.

Reactions from the Ethereum community regarding this self-limit proposal have been mixed. Some argue that self-limiting is not necessary for alignment with Ethereum principles while others emphasize the need for a more balanced distribution of validators within the network.

Data from Dune Analytics reveals that over 22% of Ethereum's supply is currently staked on the network, with just below 26.3 million Ether and over 821,600 validators at the time of writing. Despite concerns raised during the Ethereum network's Shanghai upgrade which allowed withdrawal of staked ETH, there has been a steady increase in volume since late 2020. Notably, growth has been substantial since early May with over 7 million additional ETH being staked and an increase of nearly 230,000 validators.

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