The decentralized organization behind the development of the Lido Finance project has launched a vote to limit the protocol’s share in the Ethereum 2.0 stake pool.

Should Lido on Ethereum be self-limiting?

A multi-leg vote was held to determine if Lido should limit itself to one share of staked ETH, and if so how. https://t.co/WbvuX69JfC

Start: 24.06 / 9AM UTC
End: 01.07 / 9AM UTC pic.twitter.com/U4uUZYzfaw

— Lido (@LidoFinance) 24 June 2022

Lido Finance is a service for liquid staking of cryptocurrencies. The protocol allows you to deposit funds in a corresponding contract and receive in return the amount of “derivative” tokens that can be used in DeFi services. In the case of Ethereum, these are stETH tokens.

According to Duna Analytics, Lido accounts for over 31% of all ETH in the stock.

In the discussion before the vote, the authors of the proposal noted that authorized community members recommend limiting a protocol’s stake in staking.

For example, Ethereum co-founder Vitalik Buterin stated that a project should not generate more than 15% of ETH.

Speculative controversial approach: We must legitimize price gouging by the highest stakes pool providers. For example, if a pool of shares controls > 15%, it should be accepted and even *expected* that the pool will continue to increase its fee rate until it drops below 15%. https://t.co/cOtuM7Occd

— vitalik.eth (@VitalikButerin) 14 May 2022

The authors of the proposal believe that Lido’s dominance in the Ethereum 2.0 betting pool poses a threat to the security of the blockchain, after what has been called “Merge” (Merge). The dominance of the protocol has been cited by some analysts such as Danny Ryan as a potential centralizing point.

Lido past 1/3 is a centralization attack on PoS.

We’re bad at assessing queuing risk, but betting on these thresholds in Lido involves a lot.

In blockchain systems, queuing risk does not necessarily have to be brought in so far. Systems tend to fall into extremes, systems tend to be exploited 1/2

— dannyryan 🧱🔥 (@dannyryan) 10 May 2022

Voting ends on 1 July. If the Lido DAO accepts the proposal, the authors will spark another discussion on exactly how to limit developers’ participation in the protocol’s staking process.

In June 2022, the discount on stETH exceeded 5%. At the time of writing, derivatives tokens are trading almost 4% below native Ethereum coins (Curve decentralized exchange).

Recall that CoinShares analysts urged not to compare the situation around stETH with the collapse of the Terra ecosystem.

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