Proposed Approval Ethereum ETH
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According to an analysis by S&P Global Ratings, U.S. exchange-traded funds (ETFs) seeking to introduce staking may increase the risk of concentration on Ethereum.
“A U.S. spot ether ETF that integrates staking could become large enough to change the concentration of validators on the Ethereum network, for better or for worse,” S&P analysts Andrew O’Neill and Alexandre Birry wrote in a report published Tuesday. “There is,” he said. “It is therefore important to understand how the choice of ETF issuer creates concentration risk.”
Analysts predict that the U.S. Securities and Exchange Commission will approve a spot Ether ETF as early as May of this year. This is the first deadline to approve such funds. Several companies, including giants like BlackRock and Fidelity, have applied for spot ether ETFs. Some of the applicants, most notably Ark Invest and Franklin Templeton, are also aiming to generate additional revenue by staking native Ethereum.
A spot ether ETF is unlikely to choose a protocol like Lido for staking.
Lido, a decentralized liquid staking protocol, is currently the largest Ethereum validator, followed by Coinbase. A spot ether staking ETF is unlikely to opt for a decentralized protocol like Lido, according to S&P analysts. Instead, they are likely to choose an institutional cryptocurrency custodian. Analysts noted that the impact on concentration will depend on whether the issuer diversifies its holdings across multiple custodians.
“Coinbase serves as custodian for eight of the 11 recently approved U.S. Bitcoin ETFs and has been designated as a staking institution by three of the four largest non-U.S. Ether staking ETFs,” the analysts said. “The emergence of new digital asset custodians will enable ETF issuers to spread their holdings across multiple companies and mitigate these risks,” they added.
JPMorgan analysts recently warned of concentration risks in Ethereum, of which Lido is the largest validator.
“Centralization by any entity or protocol poses risks to the Ethereum network as a concentrated number of liquidity providers or node operators could act as a single point of failure, become a target for attack, or collude to create an oligopoly that promotes their own interests. It goes without saying that they pursue their own interests at the expense of the interests of the community, for example by censoring certain transactions or preemptively executing end-user transactions,” JPMorgan analysts said at the time.
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