A DeFi betting pool and three centralized cryptocurrency exchanges account for almost two-thirds of Ethereum (ETH) securing the network before Merge. Here are the details…
The Merge upgrade, scheduled for completion next week, has been going on for years
As we reported on cryptokoin.com, Merge will shift Ethereum’s current proof-of-work mining model to a consensus system that is expected to use more than 99 percent less energy. When the Ethereum mainnet makes this transition, it will be validators, not miners, who verify transactions and add them to the blockchain. Like miners, these validators will earn rewards for helping to secure the network. However, being a validator has a high cost of entry and involves a lot of risk.
Investors will need to deposit 32 ETH collateral (worth about $52,000) to become a validator and protect hardware and software to avoid downtime penalties. This led to staking pools. To participate, people lock their Ethereum with a third party like Lido Finance or Coinbase. These entities use the funds to set up validators and handle the load of worker nodes. In return, they receive part of the rewards and pass the rest to the depositors.
Why are Ethereum staking pools important?
According to blockchain analysis firm Nansen, there are more than 422,000 unique validators on Beacon Chain with $22.3 billion worth of Ethereum (13.5 million ETH). Thirty percent of the ETH deposited is controlled by Lido Finance, 15 percent by Coinbase, 8 percent by Kraken and 7 percent by Binance. This stake is more than 60 percent of Ethereum.
To understand the impact of this situation, think of staking pools as real estate investment trusts. A REIT gives people exposure to investment property without the need to buy it on their own and split the income. But if four REITs control 60 percent of all homes, it’s easy to imagine what could happen to the market when even just one of them decides to prevent certain people from buying and renting homes. This is why staking pools got a lot of attention before Ethereum Merge. Single entities controlling large groups of validators undermine the idea of security through decentralization.
Here are the Biggest Ethereum staking pools:
Lido Finance – 4.2 million ETH
Lido Finance and Staked ETH (stETH) have been the most popular betting pool. However, Lido launched its staking token in late 2020, just before the Beacon Chain was created. The liquid nature of the token means that ETH depositors receive stETH and can sell, trade or lend stETH while their ETH remains locked with Lido. According to Etherescan, stETH is held by more than 98,000 unique wallets.
Coinbase – 2 million ETH
Coinbase has offered Ethereum shares since April last year. But two weeks ago, the company launched a staking option. Coinbase Wrapped Staked ETH (cbETH). cbETH has a market cap of $936 million according to CoinMarketCap. It is held in separate 880 unique wallets.
Kraken – 1.1 million ETH
In December 2020, after the launch of the proof-of-stake Beacon Chain, Kraken announced that its customers had deposited 100,000 ETH before Merge. This amount has increased tenfold. Unlike Lido, Coinbase, and Binance, Kraken does not offer a staking option. The stock market provides information on the subject at the top of the frequently asked questions page. There is a warning in this section to tell users that they will not be able to get their Ethereum back until after the Merge. But Kraken’s exposure to betting pools is actually bigger than 1.1 million ETH looks. In December 2021, Kraken acquired Staked.US, its US arm Staked.US, which owns 405,600 shares of ETH.
Binance – 904,608 Ethereum
Binance launched Binance Beacon ETH (bETH) in late 2021. Thus, it issues it to Ethereum depositors who participate in the betting pool. It also allows bETH token staking. This means users can use it on Binance Smart Chain the same way they would otherwise use Ethereum. According to BscScan it is currently held in 8,939 unique wallets.
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