The rise in the staking of Ether since the Shanghai and Merge upgrades have emerged simultaneous to a significant change. This means that the network of Ethereum has turned more centralized following these upgrades while the overall yield of staking has dropped, as per JPMorgan. The prominent banking institution mentioned this in its recent report that it published on Thursday.
Shanghai and Merge Upgrades of Ethereum Make It More Centralized, Says JPMorgan
In that report, the analysts (under the lead of Nikolas Panigirtzoglou) discussed the viewpoint of several in the community of cryptocurrency. As the report discloses, these members had witnessed Lido Finance’s (a decentralized platform for liquid staking) better position. They think that Lido can offer better liquid staking than the centralized companies for liquid staking.
The respective platforms are reportedly connected to centralized exchanges. Lido has recently been incorporating additional node operators. The purpose of this was to contain the figure of staked ETH which any operator controls. While doing this, the platform intends to deal with centralization-related apprehensions, the Wall Street Bank disclosed.
Even then, centralization at any protocol or platform paves the way for hazards for Ethereum. This is so that some selected node operators or liquidity providers could turn into a single failure point. Or else, they could become attack victims or conspire oligopoly to promote their interests at the cost of the community’s interests.
The Banks Says that Liquid Staking Causes Rehypothecation
Liquid staking’s rise has led to rehypothecation, as the bank stated. This reportedly occurs while simultaneously reusing the liquidity tokens as collateral across several DeFi protocols. The note brought to the front that rehypothecation could lead to a liquidation cascade if a staked asset dips suddenly in value. The staking rise has additionally minimized interest in ether in terms of yields.
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