Is Lido's threat to the consensus security of the Ethereum mainnet a real issue?
Currently, Lido's market share has reached 31.7%.Author: NingNing
Is Lido's threat to the consensus security of the Ethereum mainnet a real issue?
Recently, Ethereum Foundation developers, Ethereum founder Vitalik, and small staking pools have been discussing the current state of Ethereum's PoS, expressing concerns and dissatisfaction over Lido's market share in ETH staking approaching 1/3, calling for Lido to self-limit.
This is because after Ethereum transitioned to a PoS consensus mechanism, the underlying system is based on Byzantine consensus. In a Byzantine consensus system, if 1/3 of the nodes act maliciously, it can lead to the failure of the consensus system. If Lido's market share exceeds 1/3, it theoretically means that Lido has the ability to disrupt Ethereum's consensus. Currently, Lido's market share is 31.7%.
As a result, a narrative has recently emerged in the market: Lido's monopoly has threatened the consensus security of the Ethereum mainnet. There are even more FUD statements: the Ethereum Foundation and Vitalik have recently sold ETH because they know the PoS mechanism has failed.
These statements and claims are exaggerated.
First of all, Lido is not a single entity. When users delegate ETH to Lido, Lido will further delegate it to over 20 partner node operators for staking.
The possibility of Lido colluding with these 20+ partner node operators to attack Ethereum's consensus is extremely low.
Moreover, Lido lacks the malicious motivation to attack Ethereum's consensus. The Lido protocol currently earns $55.57 million a year from staking fees, and there is no reason to attack Ethereum's consensus and jeopardize their own income.
Even if we assume that the Lido protocol is inherently malicious and wants to act without reason, they could simply rug pull the ~$14 billion in ETH staked through the Lido protocol, which is much easier and more profitable than attacking Ethereum's consensus.
Therefore, while it is true that Lido's market share exceeding 1/3 theoretically gives them the ability to attack Ethereum's consensus, this ability is far from being a real threat to Ethereum's consensus security.
Secondly, in a natural state, Lido's market share may not exceed 1/3 for a long time.
As shown in the attached image, since Lido's market share peaked at 32.5% in May 2022, it has been hovering around the 31% upper limit for 17 months, and according to the current market growth trend, it will likely continue to remain stagnant.
It seems that in a natural state, Lido has encountered the limits of market growth, and a 1/3 market share may forever be out of reach.
Furthermore, both the Ethereum community and the Lido community have clearly recognized the risks that Lido's monopoly position poses to Ethereum's consensus security, and they are both thinking of ways to address it, albeit with differing opinions on solutions.
The Ethereum community (led by RocketPool) is calling for Lido to self-limit and cede some market share to other small and medium-sized staking pools.
Vitalik's latest article discusses the possibility of reducing this risk by integrating delegation and allowing delegates to participate in the consensus layer.
On the other hand, the Lido community is unwilling to self-limit, proposing a dual voting mechanism of LDO and stETH, a fully equivalent Ethereum governance mechanism, and eventually becoming a completely decentralized middleware without governance and intervention.
Finally, I would like to share my personal thoughts. If you carefully observe the attached image, you will notice that Lido's market share has been close to 1/3 for 17 months, and there has been no serious discussion about it during that long period.
That is because the market landscape was not stable at that time, and the Rocket Pool team had even boldly claimed they would surpass Lido.
However, after the Cancun upgrade, due to the Lindy effect and economies of scale, Lido has almost effortlessly captured 90% of the incremental market share, while Rocket Pool's market share has dwindled to less than 3% today.
The sudden surge in discussions recently may be because small staking pools like Rocket Pool feel they can no longer compete with Lido in a fair market, so they want to use decentralized political correctness to pressure Lido into ceding market share.
In a world full of hustle and bustle, everyone is seeking profit; in a world of excitement, everyone is pursuing gain.
What does this have to do with the security of Ethereum's consensus?
