S&P Global Ratings: “Ether ETFs Increase the Risks of Ethereum Centralization”

Analysts at S&P Global Ratings believe that the launch of spot ETFs for ether could concentrate a significant amount of ETH in one hand, and this entails risks of centralization of the Ethereum network.

Andrew O'Neill and Alexandre Birry believe the US Securities and Exchange Commission (SEC) will approve spot Ethereum ETFs by May this year. Currently, the regulator is considering several applications for such funds, including from the largest companies BlackRock and Fidelity. However, with large-scale infusions into spot ETFs, a large amount of ETH may accumulate in the wallets of these companies, which may affect the decentralization of the network of the second cryptocurrency.

“US spot ETFs for ether include staking of the asset in their terms. They can become large enough to change the concentration of validators on the Ethereum network in a certain direction. Therefore, it is very important to understand how the choice of ETF issuers will affect the concentration of validators and assess the risks for decentralization of the network,” the analysts write.

S&P specialists emphasize that owners of spot ETFs will not use decentralized staking protocols like Lido, but will choose a centralized institutional provider of custody services. And such a concentration of ETH in the wallets of one organization can reduce the decentralization of the network. However, this can be avoided if you use several custodial services.

“Coinbase is currently the custodian for 8 of the 11 Bitcoin spot ETFs and 3 of the 4 largest foreign Ethereum ETFs.. The emergence of spot Ether ETFs in the US will require the selection of additional custodial services to maintain decentralization of the network,” the report notes.

Recently, the ETH price exceeded $3,000 for the first time in two years.