As it continues to grow, liquid staking brings considerable risks to the space and needs better decentralization, according to a report published by digital asset firm HashKey Capital.
According to the report, the overall liquid staking derivatives (LSD) market has surged to more than $22 billion in total value locked in 2023. In addition, the market capitalization of LSD projects has reached $18 billion.
While the growth of LSD protocols may be good for their respective communities and tokenholders, it also could be a double-edged sword. According to the report, it could harm the Ethereum ecosystem in various ways.
As the table above shows, many LSD protocols rely on a small number of node operators that centralize a large number of validator nodes. According to the report, the number of node operators should be a “point of concern for centralization.”
Related: Liquid staking claims top spot in DeFi: Binance report
The report notes that centralization in liquid staking can have several harmful effects on the ecosystem, such as reduced competition and increased risk of censorship. According to the report:
“There is a heightened possibility of censorship with…
