The Merge is coming, we are at D-1 of the long awaited event by the crypto community. Ethereum is about to change its consensus system. Many hope that the Merge will bring a boost to the bear market. If not, its advent involves a good deal of preparation for stakers. Indeed, some players in the ecosystem are starting to worry about too much centralization of staking on Ethereum.
Ethereum merge: D-1
This Merge planned by Ethereum promises several benefits such as improved efficiency, speed, security and scalability of the network, as well as a reduction in the amount of energy needed for calculations. As a result, it will be able to process more transactions per second and adapt to multiple use cases. Note that at the moment, Ethereum only allows 15 transactions per second. After the Merge, this number will be revised to 100,000.
To do this, the execution layer will be connected to the consensus layer in Proof of Stake. In practice, the consensus layer is provided by the beacon chain. This was launched in December 2020 and has been running in parallel with Ethereum ever since.
Its launch marked the beginning of ETH token staking. Indeed, users are able to block 32 ETH on the beacon chain to participate in the validation process of transactions.
Currently, the beacon chain has no less than 426,000 validators, for 13 million ETH deposited.
In other words, to become a staker on Ethereum, or more precisely to be able to add blocks to the beacon chain, you need to invest at least 32 ETH. This is called “stake”. The stake is necessary to motivate the staker not to disconnect or engage in deliberate collusion.
Nevertheless, the staker is favored by Ethereum. In particular, he will be granted passive income that can go up to 1/8 of the basic reward, as a “proposer” and 7/8 as an “attester”. Of course, the earnings of the staker will depend on the total amount of ETH and the means deployed to stake this cryptocurrency.
The 5 main staking pools
However, users who do not have access to these 32 ETH can also participate in the validation process.
To do so, they can join two types of staking pools:
Centralized staking pools, operated by Coinbase, Kraken or Binance. The so-called “liquid” staking pools, operated by protocols such as Lido or RocketPool.
However, the use of these infrastructures, although facilitating access, creates a major problem of centralization.
Indeed, according to cointelegraph, the five main staking pools represent 64% of all ETH staked on the beacon chain, including :
- Lido Finance: 31%.
- Unlabelled: 23% of the total
- Coinbase: 15% of the total
- Kraken: 8.5
- Binance: 6.75
However, this centralization has raised several concerns from the community.
First, pools belonging to centralized exchanges are subject to regulatory constraints. Therefore, too much centralization around these players could be dangerous for censorship resistance.
Second, centralization around these pools raises concerns about client diversification. Indeed, unlike many blockchains, Ethereum has several software clients. This diversity was put in place to reduce dependence on a single client.
However, staking pools are not the best students in terms of diversification. Indeed, most of them use the Prysm client, resulting in centralization around it.
Other concerns are rising alongside The Merge. For example, a researcher has discovered that it is possible that some validators produce two blocks in a row. A situation that could prove to be an attack vector.
Currently, there are about 13.39 million ETH stacked, which is 11% of the total supply of ethers in circulation.