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The rise of Ethereum staking since major network upgrades, the Merge and Shanghai, has come at the cost of higher centralization and lower staking yields, a new report by JPMorgan said.

JPMorgan analysts, led by senior managing director Nikolaos Panigirtzoglou, issued a new investor note on Oct. 5, warning about the risks stemming from Ethereums growing centralization.

The top five liquid staking providers: Lido, Coinbase, Figment, Binance and Kraken, control over 50% of staking on the Ethereum network, JPMorgan analysts noted in the report, adding that Lido alone accounts for almost one-third.

The analysts mentioned that the crypto community has seen the decentralized liquid staking platform Lido as a better alternative to centralized staking platforms associated with centralized exchanges like Coinbase or Binance. However, in practice, even decentralized liquid staking platforms involve a high degree of centralization, JPMorgans report said, adding that a single Lido node operator accounts for more than 7,000 validator sets or 230,000 Ether (ETH).

These node operators get selected by Lidos decentralized autonomous organization (DAO), which is controlled by a few wallet addresses, making Lidos platform rather centralized in its decision making, the analysts wrote. The report mentioned a case when Lidos DAO rejected a proposal to cap the staking share at 22% of Ethereums overall staking to avoid centralization.

Lido didnt participate in the initiatives as its DAO rejected the proposal by an overwhelming majority of 99%, JPMorgan analysts wrote, adding:

Apart from higher centralization, post-Merge Ethereum is also associated with an overall staking yield decline, JPMorgan noted. The standard block rewards declined from 4.3% before the Shanghai upgrade to 3.5% currently, the analysts wrote. The total staking yield has declined from 7.3% before the Shanghai upgrade to around 5.5% currently, the report added.

Related: Time to pull the brakes on Ethereum and rotate back to Bitcoin: K33 report

JPMorgan analysts arent the only Ethereum observers who have noticed a significant increase in network centralization following the Merge upgrade. Executed on Sept. 15, 2022, the Merge has been seen as a major impediment to Ethereums decentralization and a major reason for dropping yields.

Ethereum co-founder Vitalik Buterin has admitted that node centralization is one of Ethereums main challenges. In September 2023, he said that finding a perfect solution to handle this problemmay take another 20 years.

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Rise of Ethereum staking came at cost of higher centralization JPMorgan - Cointelegraph