According to CoinDesk, JPMorgan has expressed concerns over the centralization and reduced staking yields in the Ethereum network following the Merge and Shanghai upgrades. In a research report, the bank noted that the rise in ether (ETH) staking has led to a more centralized network and a decrease in overall staking yield.
The report mentioned that many in the crypto community viewed Lido, a decentralized liquid staking platform, as a better alternative to centralized liquid staking platforms associated with centralized exchanges. Lido has been adding more node operators to address centralization concerns and to prevent any single operator from controlling a large number of staked ether.
However, the report warned that centralization by any entity or protocol creates risks for Ethereum. A concentrated number of liquidity providers or node operators could act as a single point of failure, become targets for attacks, or collude to create an oligopoly that would promote their own interests at the expense of the community.
Another risk highlighted by JPMorgan is rehypothecation, which occurs when liquidity tokens are reused as collateral across multiple decentralized finance (DeFi) protocols simultaneously. This could result in a cascade of liquidations if a staked asset drops sharply in value or is hacked or slashed due to a malicious attack or protocol error.
The increase in staking has also diminished the appeal of ether from a yield perspective, particularly in the context of rising yields in traditional financial assets. The total staking yield has dropped from 7.3% before the Shanghai upgrade to about 5.5%.
