Coinbase’s emergence because the Ethereum community’s largest node operator raises considerations about community centralization that might worsen as institutional adoption accelerates, trade executives instructed Cointelegraph. 

On March 19, Coinbase printed a report disclosing that the US cryptocurrency alternate managed greater than 11% of staked Ether (ETH), more than any other Ethereum node operator. 

According to Karan Sirdesai, CEO of Web3 startup Mira Network, Coinbase’s rising dominance highlights “a systemic issue in Ethereum’s staking architecture.”

“We’re creating a system where a handful of major players control an outsized portion of network security, undermining the core promise of decentralization,” Sirdesai instructed Cointelegraph.

According to the report, Coinbase managed 3.84 million ETH staked to 120,000 validators, representing 11.42% of staked Ether as of March 4. 

Liquid staking protocol Lido controls a bigger share of staked Ether total — roughly 9.4 million ETH, according to Lido’s web site.

However, Lido’s staked Ether is distributed throughout dozens of unbiased node operators, Anthony Sassano, host of The Daily Gwei, said in a March 19 publish on the X platform.

To restrict dangers, Coinbase spreads staking operations throughout 5 nations and employs a number of cloud suppliers, Ethereum shoppers, and relays, in accordance with its report. “Diversification on the community degree and the general well being of the community is at all times a precedence for us. That’s why we periodically examine community distribution,” the alternate stated.

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Impending centralization dangers

Ethereum’s community focus might worsen if US exchange-traded funds (ETFs) are permitted to start staking — a priority for asset managers such as BlackRock.

Coinbase is the biggest custodian for US crypto ETFs and holds ETH on behalf of eight of the 9 US spot Ether funds, the alternate said in January. 

“This type of network consolidation brings with it increased risk of censorship and reduced network resilience,” Temujin Louie, CEO of Wanchain, a blockchain interoperability protocol, instructed Cointelegraph. 

For occasion, excessive staking concentrations “represent potential points of regulatory pressure… [and] these large staking entities will likely prioritize regulatory adherence over network censorship resistance when faced with difficult choices,” Sirdesai stated.

Meanwhile, new US regulatory steerage permitting banks to behave as validators for blockchain networks adds to centralization risks, a number of crypto executives stated.

“If too much stake consolidates under regulated entities like Coinbase and US banks, Ethereum will become more like traditional financial systems,” Louie stated. 

Conversely, extra institutional validators might really enhance staking concentrations. Cryptocurrency alternate Robinhood is particularly properly positioned to examine Coinbase’s staking dominance, in accordance with Sirdesai.

Robinhood already has “the crypto infrastructure, user base, and technical capabilities to move into staking rapidly. They could realistically challenge Coinbase’s position faster than any traditional bank,” Sirdesai stated.

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