New Concentration Risk in Ethereum with Spot Ether ETFs, S&P Global Cautions

Crypto News- As early as May this year, US regulators might greenlight Ether spot exchange-traded funds (ETFs), but according to a recent report from S&P Global, there’s a catch. Analysts Andrew O’Neill and Alexandre Birry highlight a potential concentration risk looming over Ethereum due to certain ETFs incorporating staking functionality.

The report underscores that an influx of ether staking ETFs could alter the validator landscape within Ethereum’s consensus mechanism. While the involvement of institutional custodians might mitigate centralization risks tied to platforms like Lido, it could also introduce new concerns if one entity monopolizes staking activities.

New Concentration Risk in Ethereum with Spot Ether ETFs, S&P Global Cautions

Lido, boasting a staggering $29.2 billion in total value locked, holds a dominant position in Ethereum’s staking market. Critics often cite its substantial market share as a centralization threat to Ethereum’s ecosystem. However, Marin Tvrdić, a protocol relations contributor for Lido, has clarified that neither the DAO nor the protocol itself holds custody of users’ assets, emphasizing its self-custodial nature.

S&P analysts anticipate that ETF issuers will likely opt for institutional crypto custodians over decentralized protocols like Lido. They point to Coinbase’s involvement in multiple approved Bitcoin ETFs and its role as a staking institution for leading Ether staking ETFs abroad.

With eight spot Ether ETFs under consideration by the SEC, including offerings from prominent players like Cathie Wood’s Ark Invest and BlackRock, the potential impact on concentration risk demands continuous scrutiny, assert O’Neill and Birry.

In light of these developments, the looming approval of US spot Ether ETFs presents a critical juncture for Ethereum’s decentralization efforts, urging stakeholders to closely monitor emerging risks.