Morgan Stanley argues that the crypto ecosystem is shifting to a less decentralized structure. The Bank’s report points out that 60% of validators are managed by only four companies. Therefore, he states that following the Proof-of-Stake (PoS) transition, the blockchain of the leading altcoin Ethereum has become more centralized.
“Crypto is losing its decentralized structure!”
Morgan Stanley (MS) released a research report Wednesday. The bank says in the report that the crypto ecosystem is becoming more decentralized. The report highlights that while the underlying blockchains themselves are not decentralized, the need to run a large portion of the blockchain on a single or small group of cloud providers becomes a potential risk as crypto regulation evolves.
The report says that 65% of Ethereum nodes are hosted in the cloud, and half of them use Amazon Web Services (AWS). Some service providers note that this will happen if they decide to censor certain participants or crypto products. It also states that it’s possible for long server outages that this could become an issue.
Morgan Stanley says the crypto ecosystem has evolved by “nurturing the underlying decentralized blockchains of many applications, codes, services, and companies,” causing parts of the ecosystem to become less decentralized and more dependent on individual services. The bank says this is not surprising. Because, he says, “centralization is a natural evolution of the financialization of cryptocurrency markets.” However, this brings new challenges.
Is the leading altcoin centralizing too?
As you follow on Kriptokoin.com, the leading altcoin Ethereum switched to PoS with Merge last month. Since Merge, validators now approve transactions. The report states that only four companies manage 60% of these validators. The Ethereum community is also aware of this centralization issue. In this direction, he is working on potential solutions.
The largest decentralized autonomous organizations (DAOs) have also evolved to look more like centralized companies, the bank says. The report reveals that decentralized exchange Uniswap recently voted to set up a foundation consisting of a management team, advisors and a board that manages its own financial budget. A DAO is a form of blockchain-based organization or company, usually managed by a native crypto token. Holders of these tokens have the opportunity to vote on important issues directly related to the DAO. In this process, they often use smart contracts instead of traditional corporate structures.
The report also mentions that the digital asset market is developing cryptocurrency products that comply with regulations and attract users. That’s why, he notes, it’s starting to look more like the central banking world. At the same time, traditional finance (TradFi) is rapidly launching crypto products to provide its customers with transaction-based services and other related offerings.
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