JPMorgan Issues Warning On ETH Centralization After The Merge Upgrade

Following the successful deployment of the Merge upgrade, which changed the network’s consensus mechanism from a proof-of-work (PoW) to a proof-of-stake (PoS) one, JPMorgan analysts have expressed worries about the centralization risks associated with Ethereum.

The bank’s study identifies several issues contributing to these centralization worries and emphasizes the continued difficulties Ethereum is now facing. The analysts highlight the concentration of staking power within the Ethereum network as a major problem.

The paper claims that a few entities own a sizable part of staked Ether (ETH), which could result in a less decentralized network. An illustration of this concentration is the Lido DAO, a decentralized autonomous organization that makes staking for Ethereum possible. The paper mentions that the Lido DAO rejected a proposal to reduce centralization risks.

With this proposal, the staking share would have been limited to 22% of the total staked Ethereum. Information has it that if these proposals are rejected, a few parties could gain significant influence over the network’s consensus mechanism, creating a less decentralized ecosystem.

Controversy Thrills The Centralization of Ethereum Nodes, Merge Upgrade Progressive

The fall in Ethereum’s staking yield following the Merge update is another element posing a risk of centralization. Ethereum stakes were getting a yield of about 7.3% before the Shanghai upgrade. The payout, however, has already dropped to about 5.5%, which would deter smaller stakeholders from taking part in the network.

Investigation has shown that there has long been controversy about the centralization of Ethereum nodes. While commenting on the topic, Vitalik Buterin, the  Ethereum co-founder, said Nodetralization is a complex problem for the network, and finding the ideal answer to it may take another 20 years.

Vitalik added that while PoS is typically considered more ecologically friendly and energy-efficient than PoW, it also comes with its own difficulties, such as possible centralization problems. Analysts have linked the liquid staking to (what they termed) the act of “rehypothecation,” because of it’s involvement with liquidity tokens, which is used simultaneously as collateral throughout several  DeFi protocols.

Experts Express Disappointment On Available Stats Amid Community Dedication

 The report states that the staked Ether project had less than $2 million trading volume across different ETFs, and the poor trading volume has continued within the week. This development has prompted some industry analysts to consider having pivoted investments out of BTC and ETH.

Major industry players have started comparing the ETH features of ETFs with that of the BTC, with ETH currently standing at 0.2% of its BTC trading volume in one-day trading activity. The senior ETF analyst at Bloomberg Intelligence, Eric Balchunas, had advised that the market is already overcrowded, leaving only one product to experience a high demand rate.

According to Eric, the majority of these funds will have a hard time getting assets. Some other analysts have expressed disappointment in the available stats, citing a lack of institutional demand. Some other analysts have also mentioned the declining value of different macroeconomic environments.

The CEO of CF Benchmarks, Sui Chung, said that with the current interest rate of 5.5%, it would be a bad time to launch any ETF in the market. Chung added that there might be more interest in equities ETF volumes within the week as the macroeconomic circumstances change. He (Chung) also stated that, as it stands, investors seem too busy saving their money in banks.