Ethereum: As large firms dominate the stakes, ETH’s security may be in doubt

The Ethereum [ETH] Merge with the proof-of-stake (PoS) network was completed on September 15th. The implication of the merger is that miners are now replaced by validators on Ethereum Network. However, a relatively small number of companies control the PoS mechanism. This has made analysts concerned about the centralization of the ETH network.

Lido and Coinbase dominate validation

According to a recent Dune Analytics study, Lido and Coin base are currently the two highest-stakes ETH holders. At the time of writing, each had 4.16 million ETH (30.1%) and 3.65 million ETH (14.5%) respectively. The remaining owners own 26.5% in total.

Source: Dune Analytics

Martin Köppelmann, co-founder of DeFi platform Gnosis, also noted this dominance. He released a chart showing that Coinbase and Lido had the largest percentage of stake-based Ethereum validation. He too tweeted that it was disappointing to see the top seven entities own more than two-thirds of the ETH share.

Some implications of validation centralization

A potential for a “51% attack” increases if ETH validation participation becomes overly centralized. In this scenario, a bad actor can authorize fake transactions and seriously undermine the network if they can amass up to 51% of the stake.

In addition, devices with a larger stake in the network may be breached. This can lead to the undermining of the network. Furthermore, as per data from Chainflow.io, ETH currently ranks low in terms of decentralization. This is problematic on various fronts.

Another implication is that ETH staking, especially through these large entities, opens up to censorship.

Furthermore, SEC chairman Gary Gensler warned that intermediaries that allow users to “stake” their cryptocurrency can classify it as a value under the Howey test. He reiterated this view in card for his testimony before the United States Senate Banking Committee.

As a result of the conversion to PoS and the fact that only a few companies hold majority ownership, Ethereum may have found itself in the sights of the SEC.

A look at the price

A day before the merger, ETH did some good numbers. It opened at $1,577, and reached as high as $1,649 before finally closing at $1,638, gaining just over 4%. However, the price saw a downward movement on the day of the merger. Ethereum closed at $1,472, making it over a 10% loss by the end of the day.

At press time, the highest turnover was USD 1,483. The Relative Strength Index (RSI) fell below 50. This made it a bearish trend for the altcoin. With the support at $1,400, ETH struggled to break past the $1,660 resistance. Overall, there has been a downward trend in price over the past few days for Ethereum.

Source: TradingView

According to data from Coinmarketcap, Ethereum has lost over 23% in trading volume. The market value also fell by over 7% in the last 24 hours.

Source: CoinMarketCap

Actual, nNew data from CoinGlass showed that digital assets worth $288.22 million have been liquidated in the last 24 hours.

Source: CoinGlass

Needless to say, Ethereum led the charge for this rally facing south.

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