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- 1 JP Morgan has drawn attention to economic risks due to the growing concentration of nodes.
- 2 Node operators could act as a single point of failure or promote their interest.
JP Morgan raised concerns due to an increase in the number of liquidity providers. They can act as a target for risks or they collaborate to make an oligopoly that will promote their interests at the expense of the interest of the community. This cause will affect the financial health of the network.
The company emphasized that due to increased congestion of the nodes, there are more chances of economic risks. Amid recent upgrades, the Ethereum network is becoming more centralized because there are more chances that a small number of individuals may dominate it. They will either act as targets for the risks or they may limit the outside competition and rule it.
Ethereum network is the most common network used for building non-fungible tokens (NFTs) and is the second largest cryptocurrency by market cap which is more than $198 Billion. The economic health of the network is affected by oncology as they would encourage their interest at the cost of the interest of the community.
How Upgradation on Ethereum Increases the Financial Risk
The road map of Ethereum clearly shows its upgradation with the merge, the surge, the scourge, and the verge which means the upgradation of proof or work to proof of stake, upgrades linked with scalability roll-ups, and upgrades related to varying blocks. Shanghai upgrade also known as Shapella is the latest upgrade which will facilitate the user to unlock the staked ether (ETH).
The recent upgrades on the Ethereum network have given a chance to five liquid staking providers, the private bank has pointed out the names Lido, Figment, Coinbase, Binance, and Kraken. The bank further highlights the data and shows that 50 percent of ether staking on the Ethereum network is done by these providers.
And, amongst these alone, Lido accounts for one-third of the total number.
Liquid staking tokens like Lido pose a threat to Ethereum because they offer the most dominant and superior form of staking. They create extreme network effects making it more easy and precious for users to join the largest staking pools. Projects on Ethereum can become big like Metamask. It dominates the Ethereum community with 70% of transactions.
JPMorgan warned in the report “decentralized liquid staking platform involves a high degree of centralization.” The bank also added that due to an increase in the staking activity, the Ethereum network has seen a decrease in ether yields. Once Ethereum has a yield of 7.3%, the complete staking yield increases to the yield of 5.5 %.
Adarsh Singh is a true connoisseur of Defi and Blockchain technologies, who left his job at a “Big 4” multinational finance firm to pursue crypto and NFT trading full-time. He has a strong background in finance, with MBA from a prestigious B-school. He delves deep into these innovative fields, unraveling their intricacies. Uncovering hidden gems, be it coins, tokens or NFTs, is his expertise. NFTs drive deep interest for him, and his creative analysis of NFTs opens up engaging narratives. He strives to bring decentralized digital assets accessible to the masses.
