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59% of the ETH staked is controlled by four suppliers

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The good news for Ethereum investors is that the merger went smoothly. Ethereum is now a Proof-of-Stake blockchain, which means up to 99.95% less energy consumption.

But it’s not all fun and games. The problem of centralization is hotly debated. When you go into the channel and look at the statistics, it becomes clear what a problem it is.

To explain the problem in simple terms, to become a validator on the Ethereum network, now that mining has become obsolete after the merger moved the blockchain to Proof-of-Stake, an investor must have at least 32 ETH.

Clearly, this is a significant change – amounting to $42,000 at the time of writing – and therefore impossible for most investors to achieve. In fact, the blockchain data below shows that there are only 122,000 wallets holding more than 32 ETH. That’s out of 86 million non-zero wallets.

So enter the betting pools.

By locking their funds with a third party, investors can join pools with as few ETH as they want, and the third party pools the funds to act as a validator. It’s like buying shares in a company: you don’t own the whole company, but you get a percentage of the profits.

The only problem is that these third parties then control large amounts of the network.

In fact, the concentration of assets in the four largest betting groups shows the problem. Of the 13.7 million ETH in total currently wagered, we find 4.2 million through Lido, 1.9 million through Coinbase, 1.1 million through Kraken and 0.9 million through Binance. This represents 59% of the total value wagered through these four providers alone.

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The data simply explains why some fear that the merger to proof of stake has led to further centralization of the Ethereum network. Because the truth is that it has, and it’s hard to argue otherwise with the figures presented above.

It is unnerving to think about what might happen if any of the above providers were to suddenly stop performing their stake functions, for whatever reason. Perhaps some sort of corporate scandal, or a regulatory reason (remember Tornado Cash) or some other unforeseen event.

With so much ETH being wagered by these providers, this is a huge value – and a key, central source of risk for the entire Ethereum blockchain.

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