1 year ago
HashKey Capital highlighted risks specified arsenic reduced competition, accrued hazard of censorship, decreased information and collusion by large players.
As it continues to grow, liquid staking brings sizeable risks to the abstraction and needs amended decentralization, according to a study published by integer plus steadfast HashKey Capital.
According to the report, the wide liquid staking derivatives (LSD) marketplace has surged to much than $22 cardinal successful full worth locked successful 2023. In addition, the marketplace capitalization of LSD projects has reached $18 billion.
Overview of the liquid staking derivatives marketplace successful 2023. Source: HaskKey CapitalWhile the maturation of LSD protocols whitethorn beryllium bully for their respective communities and tokenholders, it besides could beryllium a double-edged sword. According to the report, it could harm the Ethereum ecosystem successful assorted ways.
As the array supra shows, galore LSD protocols trust connected a tiny fig of node operators that centralize a ample fig of validator nodes. According to the report, the fig of node operators should beryllium a “point of interest for centralization.”
Related: Liquid staking claims apical spot successful DeFi: Binance report
The study notes that centralization successful liquid staking tin person respective harmful effects connected the ecosystem, specified arsenic reduced contention and accrued hazard of censorship. According to the report:
“There is simply a heightened anticipation of censorship with centralized staking players, arsenic they whitethorn beryllium taxable to incentives oregon regulatory unit to censor transactions. This tin perchance effect successful a disruption of the spot wrong the network.”In addition, arsenic it gets further centralized, determination are risks of decreased security, arsenic large staking players tin marque it easier for attackers to transportation retired 51% attacks. Moreover, there’s besides an accrued hazard of collusion.
“Centralized stakers tin collude to transportation retired actions that spell against the decentralization ethos and against the users, specified arsenic malevolent MEV extraction and frontrunning,” the study reads.
While determination are centralization risks, HashKey besides recognizes that astir protocols are precise caller and person made plans to decentralize and adhd distributed validator exertion to their protocols for amended decentralization and resiliency.
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