The Ethereum [ETH] Merge with the proof-of-stake (PoS) network was successfully completed on September 15th. The effect of the Merger is that miners are now replaced by validators in the Ethereum network. However, a relatively small number of companies control the PoS mechanism. This has left analysts concerned about the concentration of the ETH network.
Lido and Coinbase dominate validation
According to recent Dune Analytics Study, Outdoor swimming pool and Coinbase are currently the two highest staked ETH holders. At the time of writing, they each held 4.16 million ETH (30.1%) and 3.65 million ETH (14.5%), respectively. The other participants hold a total of 26.5%.
Martin Köppelmann, co-founder of the DeFi platform Gnosis, also noted this dominance. He published a chart showing that Coinbase and Lido had the highest percentage of Ethereum validation based on staking. He too he tweeted that it was disappointing to see the top seven entities own more than two-thirds of ETH’s share.
Of the last 1000 blocks, 420 have been produced by Lido and Coinbase alone.
— Martin Köppelmann 🇺🇦 (@koeppelmann) September 15, 2022
Some Implications of Validation Aggregation
The possibility of a “51% attack” increases if participation in ETH validation becomes too centralized. In this scenario, a bad actor can authorize fake transactions and severely undermine the network if they can amass up to 51% of the stake.
Additionally, entities with a larger stake in the network could be compromised. This can lead to network undermining. In addition, according to data by Chainflow.io, ETH is currently low in decentralization. This is problematic on several fronts.
Another consequence is that staking ETH, especially through these large entities, opens the asset up to censorship.
In addition, SEC chairman Gary Gensler warned that intermediaries that allow users to “stake” cryptocurrency can classify it as a security under the Howey test. He reiterated this view in brief for his testimony before the United States Senate Banking Committee.
As a result of its conversion to PoS and the fact that only a few companies own the majority of the stake, Ethereum may be targeted by the SEC.
A look at the price
A day before the merger, ETH did some good numbers. It opened at USD 1,577, reaching USD 1,649 before finally closing at USD 1,638, gaining just over 4%. However, the price showed a downward movement on the day of the merger. Ethereum closed at USD 1,472, making it over a 10% loss by the end of the day.
At press time, the highest it traded was USD 1,483. The Relative Strength Index (RSI) fell below 50. This made it a bearish trend for the altcoin. With support at USD 1,400, ETH struggled to break above the USD 1,660 resistance. Overall, there has been a downward trend in price over the past few days for Ethereum.
According to data from Coinmarketcap, Ethereum has lost over 23% in trading volume. Also, the market capitalization has fallen over 7% in the last 24 hours.
In fact, nCoinGlass data showed that $288.22 million worth of digital assets have been liquidated in the last 24 hours.
Needless to say, Ethereum led the charge in this southbound rally.