Critical Ethereum Upgrade Set to Break Staking Pool Monopoly, Sending Shockwaves through Lido (LDO)

Developers and members of the Ethereum community are currently engaged in debates about the potential centralization that the network may face in the future. Lido, the largest staking pool, holds a significant portion of the market, leading to proposals to mitigate this threat.

One of these proposals is the EIP-7514 (EIP stands for “Ethereum Improvement Proposal”), conceived by developers Dapplio and Tim Beiko. Although this EIP has already been added to the main Ethereum repository, it is still under review for possible inclusion in the Deneb #3499 upgrade, nicknamed “Flow Control Valve,” which is expected to take place in the coming months.

This proposal aims to limit the number of validators that can join Ethereum staking during each “epoch,” which lasts approximately six minutes. Instead of allowing the addition of thousands of validators per day, EIP-7514 establishes a limit per epoch.

According to Nolan, this measure would make it more difficult for a staking pool to accumulate more than 50% of the total Ethereum supply.

In an article titled “Concerns about the Future of Staking,” published on the blog of digital asset investment manager CoinShares, Luke Nolan emphasizes that EIP-7514 may represent “a short-term solution” to prevent Lido or others from acquiring too much stake in Ethereum staking.

Nolan also notes that in the long term, the strategy to be adopted is not yet fully defined. However, EIP-7514 provides developers with “more than enough time” to think about ways to prevent potential threats to the network.

Among the potential solutions proposed to avoid excessive centralization in Ethereum staking pools are fee burning, increasing the maximum effective balance of validators, reducing staking rewards, and lowering barriers to entry for liquid staking providers. The goal is to promote competition against Lido and its competitors.

Centralization in staking pools represents a substantial risk for a network that operates based on the Proof of Stake (PoS) algorithm. This is because a pool that accumulates more than 50% of the stake would have disproportionate control over the network, which goes against the fundamental principle of decentralization.

Furthermore, a malicious actor with more than 50% of the stake could carry out attacks such as double-spending or a 51% attack. These attacks could allow the reorganization of the Ethereum blockchain in their favor and the use of already spent cryptocurrencies in new transactions.

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