36% of the network in the hands of 5 players – Who will really lead Ethereum 2.0?

Centralization at the center of the debates The Ethereum 2.0 beacon chain was launched in December 2020. Since then, several hundred thousand users have flocked to the network to become validator nodes. Many of them have become validators through pools, owned by major players in the field. However, based on public data, not all of these pools are created equal.

Ethereum 2.0: the advent of Proof of Stake (PoS)

The network Ethereum is at the heart of a major update called Ethereum 2.0. Without going into detail, this new version of Ethereum aims to solve the congestion problems encountered by the network.

This update started with the launch of the beacon chain, in December 2020. The beacon chain acts as the backbone of Ethereum 2.0. In practice, it is a Proof of Stake blockchain, independent of the Ethereum network as we know it.

The second major step of Ethereum 2.0 is the transition to Proof of Stake. Thus, this one will be realized through The Merge. The Merge aims to connect the application layer of Ethereum 1.0, to the consensus layer of Ethereum 2.0.

The third step is the deployment of shard chains. These will allow the network to be fragmented into subnets, and will drastically increase the performance of Ethereum.

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Validators on Ethereum 2.0

As we have just seen, the beacon chain is a Proof of Stake blockchain. Who says independent blockchain, said transaction validators.

Thereby, the beacon chain relies on validator nodes having staked (put into escrow) 32 ETH. The latter perform the same work as the miners on Ethereum 1.0, namely to validate the transactions and offer the blocks.

Currently, you have two options to become a validator on Ethereum 2.0:

  • Host a node yourself and take care of its deployment and maintenance;
  • Opt for a staking pool service, which operates the node for you for a fee.

Obviously, operating a validator node is not within everyone’s reach. Especially since the risk of slashing weighs on the validators.

Thus, many validators choose to go through the more or less centralized service offered by the pools.

However, according to data compiled by Ethereum Pools, at least 36.7% of validator nodes on Ethereum 2.0 are operated by the 5 major pools.

Ranking of pools based on the %age of nodes owned
Ranking of pools based on %age of nodes owned – Source: Ethereum Pools.

Thus, the podium is composed of Lido in first place with 18% of nodes of the network, followed by kraken and Binance with respectively 11 and 3.3% of knots.

A disparity in the quality of service

Overall, all major pools provide exemplary service, with very few disconnects.

History of attestations missed by pools
History of attestations missed by pools – Source: Ethereum Pools.

Unfortunately, this is not the case for all pools. Thus, the pool STKR seems to have recorded many disturbances in recent days. His number of failed certificates has drastically increased since January 15.

According to the calculations presented by Ethereum Pools, the STKR pool has a capital efficiency almost 20% lower than its competitors.

“An important metric that we use to measure pool capital efficiency is reward per epoch per active validator. This represents the performance of a single validator per epoch, and since it is normalized, it can be compared. See how STKR is still well below average.”

Ethereum Pools report.

The report states that it has no intention of “creating FUD”. He takes the opportunity to specify that no case of slashing has been detected on this pool. Thus, this report only seeks to highlight an obvious lack of pool performance, which could likely be corrected by the STKR teams.

Diversification of customers

Unfortunately, the diversification of Ethereum clients used by nodes remains a major problem for the network.

Indeed, 68.1% of network nodes use the Prysm client. This poses a major problem in the event that a bug were to affect this client. If so, the entire Ethereum network could be crippled.

Diversification of customers on Ethereum 2.0
Diversification of customers on Ethereum 2.0 – Source: Michael Sproul.

So the pools we featured earlier have a major role to play in solving this problem, as Michael Sproul pointed out on Twitter.

“Centralized staking pools have a huge influence on Ethereum 2.0, and they mainly use Prysm. If you are staking with a pool, PLEASE put pressure on them to use a mix of clients. If possible, try to switch to a pool that uses different clients.”

These issues are major, especially as we approach the final transition to Proof of Stake. Indeed, the deployment of The Merge is scheduled for around June 22, 2022, according to the latest announcements made by the developers.

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