Ethereum Lido Risk Grows as SEC Targets Exchange Staking Services

Ethereum Lido Risk Grows as SEC Targets Exchange Staking Services

The US Securities and Exchange Commission believes that all crypto assets except Bitcoin are securities. Its recent war on crypto exchanges also included staking services, which the regulator wants to shut down.

This could result in more staked ETH being pushed off exchanges and onto the market-leading liquid staking provider, Lido. This may sound good, but it poses significant risks for the Ethereum ecosystem.

Lido Staking Risks Revealed

Lido offers liquid Ethereum staking services as an alternative to self-staking, which is highly technical and involves exchanges that require significant commissions.

It has quickly become the market leader with 7.18 million ETH staked, or 36% of the total 19.6 million ETH staked.

On June 13, Ethereum proponents sounded the alarm at “Bankless” on the Lido. vocation to prevent its dominance in ETH use.

A continued SEC crackdown on exchanges is likely to lead to more Ethereum being pledged to Lido, it said. There has already been a spike in withdrawals of staked ETH from Coinbase last week following the regulator's lawsuit.

Kraken was forced to suspend its Ethereum staking services for US users in February, leading to an exodus as soon as Shapella was launched.

Additionally, Lido’s market share has grown since the Shapella upgrade enabled stake withdrawals.

Ethereum developers like Danny Ryan have warned about the dangers of “cartelization,” where platforms like Lido can make outsized profits compared to non-pooled capital.

Bankless reported that the platform is near the first threshold with around a third of all ETH staked.

“Lido is approaching the first of three thresholds at which Ethereum becomes more easily manipulated by an attacker.”

It added that Lido had already voted against self-limiting deposits, but Ethereum proponents are now demanding that they do so.

“It is unlikely that Ethereum will introduce such controls at the protocol level, but it is clear that Lido will have to expect an economic impact,” Bankless noted.

There is a growing movement to divest from Lido and explore alternative options for staking Ethereum.

“Etherians must band together and reduce our dependence on Lido to prevent it from dominating staking!”

ETH price outlook

Ethereum deposits are still outpacing withdrawals, however asset prices have taken a hit following regulatory attacks on the industry last week.

According to CoinGecko, ETH was trading flat at $1,745 at the time of writing. The asset has lost more than 8% since the SEC sued Binance and Coinbase last week, more than its big brother Bitcoin.

Furthermore, it is looking increasingly bearish as it has fallen to the lower limit of its three-month range channel.

.