Ethereum

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 HashKey Capital highlighted risks such as reduced competition, increased risk of censorship, decreased security and collusion by big players. 
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 As it continues to grow, <a rel="noopener noreferrer nofollow" title="liquid" href="https://thebittimes.com/tag/liquid.html">liquid</a> <a rel="noopener noreferrer nofollow" title="staking" href="https://thebittimes.com/tag/staking.html">staking</a> brings considerable risks to the space and needs better decentralization, according to a <a rel="noopener noreferrer nofollow" title="report" href="https://thebittimes.com/tag/report.html">report</a> published by digital asset firm HashKey Capital.&nbsp; 
 According to the <a rel="noopener noreferrer nofollow" title="report" href="https://thebittimes.com/tag/report.html">report</a>, the overall <a rel="noopener noreferrer nofollow" title="liquid" href="https://thebittimes.com/tag/liquid.html">liquid</a> <a rel="noopener noreferrer nofollow" title="staking" href="https://thebittimes.com/tag/staking.html">staking</a> derivatives (LSD) market has surged to more than $22 billion in total value locked in 2023. In addition, the market capitalization of LSD projects has reached $18 billion. 
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 <img src="https://cdn.thebittimes.com/images/2023/08/03/4e1417fd8d506d47b86bc3556f81b0bf.webp" alt="" title=""> 
 <figcaption style="text-align: center;"> Overview of the liquid staking derivatives market in 2023. Source: HaskKey Capital 
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 While the growth of LSD protocols may be good for their respective communities and tokenholders, it also could be a double-edged sword. According to the report, it could harm the Ethereum ecosystem in various ways. 
 As the table above shows, many LSD protocols rely on a small number of node operators that centralize a large number of validator nodes. According to the report, the number of node operators should be a “point of concern for centralization.” 
 Related: Liquid staking claims top spot in DeFi: Binance report 
 The report notes that centralization in liquid staking can have several harmful effects on the ecosystem, such as reduced competition and increased risk of censorship. According to the report: 
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 “There is a heightened possibility of censorship with centralized staking players, as they may be subject to incentives or regulatory pressure to censor transactions. This can potentially result in a disruption of the trust within the network.” 
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 In addition, as it gets further centralized, there are risks of decreased security, as big staking players can make it easier for attackers to carry out 51% attacks. Moreover, there’s also an increased risk of collusion. 
 “Centralized stakers can collude to carry out actions that go against the decentralization ethos and against the users, such as malevolent MEV extraction and frontrunning,” the report reads. 
 While there are centralization risks, HashKey also recognizes that most protocols are very recent and have made plans to decentralize and add distributed validator technology to their protocols for better decentralization and resiliency. 
 Magazine: SEC reviews Ripple ruling, US bill seeks control over DeFi, and more: Hodler’s Digest, July 16-22 
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How liquid staking can potentially harm the Ethereum ecosystem: HashKey report

TheBitTimes

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