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In a spicy take on Lidos liquid staking dominance, David Rodriguez says Ethereum thought leaders arent being realistic about the problem and are in fact, coping.

The Blockworks Research analyst doesnt hold back in his critique of some of the communitys suggestions to address the situation.

Rodriguez explains that some leaders are suggesting Lido should take one for the team, voluntarily limiting itself to 22% staking dominance well below its current position at around 32% of the market.

Competing liquid staking providers are valiantly promising that they would, of course, do the same, Rodriguez says, if only they could first grow more than ten times in size to even face the same dilemma.

On the 0xResearch podcast (Spotify/Apple), Rodriguez argues that the suggested tactics to limit Lidos dominance are short-sighted.

The overall argument, Rodriguez says, is that if Lido has more than 33% market dominance, that hurts Ethereums credible neutrality. Lido essentially becomes a governance wrapper over Ethereum, which specifically was never meant to have on-chain governance.

If Ethereum, as a community, decides that Lido is too powerful [and] decides to enshrine liquid staking into the protocol, or decides to straight-up fork Lido, he says, that harms the property rights of developers and users of Ethereum.

Looking back at earlier days of liquid staking on Ethereum, Rodriguez says, we easily could be in a world today where centralized exchanges are the majority of the stakers of Ethereum.

The reason centralized exchanges are not the monopoly powers over Ethereum, Rodriguez says, is specifically because of Lido. He adds that Lido is implementing a staking router to help diversify staking to smaller validators.

Rodriguez says Lido is implementing dual-governance in the future, whereby staked ETH holders will have veto rights in the event of any malicious act by Lido governance.

Lido is demonstrating through these actions, he says, that it is trying to become incentive-aligned with Ethereum long-term. In fact, no protocol other than Uniswap, perhaps, is more aligned with Ethereum, argues Rodriguez.

Were going to ultimately have a winner-take-most or a winner-take-all scenario in an open source world, he says, where network and liquidity effects really drive brand and overall market dominance in the future.

The cause for concern is over-blown, he says.

Self-limiting to a maximum market dominance of 22% loses nuance, says Blockworks research analyst, Ryan West. Solving the problem requires addressing the mechanism design from a core protocols perspective, West says.

If the only solution you have to this is asking and begging the protocols themselves to self-limit, he says, its a problem with the underlying design.

West explains that limiting staking dominance to 22% or less would theoretically make it difficult to take over the network as more than three entities would have to collude to exceed 66% of the entire stake. I believe thats the reasoning behind it, he says, but at the same time, when you look at the design of these LST protocols, its not like its one entity staking this ETH.

There are decentralized solutions and Lido is obviously working towards those, he says.

You should look less so at the number of ETH staked by these operators and instead look at the underlying design, West says. As long as its aligned with Ethereum, then I think thats good enough for me.

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Ethereum thought leaders are 'coping' with Lido dominance, says ... - Blockworks