The staking powerhouse dominates the market for liquid tokens. Is this a problem? Marin Tvrdić, a protocol relations contributor at Lido, responds.
Things move fast in crypto land, even during “crypto winter.” Just over a year ago, Ethereum still operated using Proof-of-Work, meaning that exactly 0.000 ETH were “staked.” Once Proof-of-Stake roared to life, it turns out people liked earning rewards and now, incredibly, over 20% of all ETH are committed to the network via staking.The one clear downside of staking, of course, is that your Ethereum is unavailable.
Exactly as you said. It's a set of smart contracts that route Ethereum from the end-user, through node operators, to specific validators. And it operates in a permissionless manner, and no one, no human person, has any interactions, at any point, with the protocol. So, it's fully, fully, fully smart contract-managed. And best of all, contracts are open-sourced, so anyone at anytime can come and audit everything by themselves.
Critics worry that if too much Ethereum is staked with Lido, that could harm the network. How do you respond to this? Even if it did have that power, what people don’t understand is that the node operators are concerned about slashing. [“Slashing” is a penalty for validators, in Staking, if they in some way misbehave — the Staked Ethereum is “slashed” or removed.] If they’re affecting finality [and hurting the network], they get slashed. When they get slashed, they lose Ethereum from their validators, which means end-users are losing their Ethereum, which means node operators are losing their source of income.
Isn’t there a paradox here? To your point, as staking grows the rewards will come down. If we get to a world where everyone is staking, does that mean the rewards are eliminated, which would mean no one wants to stake? Hmm. So, I wouldn't call it yield farming, because it's not actually a currency, and you're not consuming structured financial products. And it’s the user who actually puts his asset to additional risk by over-leveraging.
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