Lido Risks for Ethereum Grow as SEC Targets Exchange Staking Services

The US Securities and Exchange Commission is convinced that all crypto assets except bitcoin are securities. Its latest war on crypto exchanges involves staking services, which the regulator wants to shut down.

This could push more staked ETH out of exchanges and onto Lido, the market leading liquid staking provider. This may sound cool, but it poses a significant risk to the Ethereum ecosystem.

Lido Staking Risks Exposed

Lido offers Liquid staking services for Ethereum as an alternative to self-staking, which is highly technical, and involves exchanges charging substantial commissions.

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

On June 13th, advocates of Ethereum’s ‘bankless’ raised the alarm on Lido, calling To prevent their dominance of ETH staking.

It has been noted that a continued SEC crackdown on exchanges is likely to push Lido more Ethereum. There was already a surge in ETH redemptions from Coinbase last week following a lawsuit by the regulator.

Kraken was forced to end its Ethereum staking services for US users in February, resulting in an exodus as Shepela rolled out.

Furthermore, Lido’s market share has increased since the Shepela upgrade, making staking withdrawals possible.

Ethereum developers like Danny Ryan have warning About the dangers of “cartelization” bets, in which platforms like Lido can extract higher profits than non-pooled capital.

Bankless pointed out that the platform was near the first threshold, holding roughly a third of all ETH.

“Lido is close to the first of three thresholds at which Ethereum is easily manipulated by an attacker.”

It added that Lido has already voted against self-limiting deposits, but Ethereum advocates are now asking them to do the same.

“It is unlikely that Ethereum will implement such controls at the protocol level, but it is clear that Lido will face economic consequences,” Bankless said.

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

“Etherians must unite and reduce our dependence on Lido to stop their dominance at stake!”

ETH Price Outlook

Ethereum staking deposits are still outpacing withdrawals, however, as the asset prices plummeted following last week’s regulatory assault on the industry.

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

Additionally, it is looking increasingly bearish by falling to the lower boundary of its three-month long range-bound channel.