S&P Global Cautions That Ethereum Spot ETFs Could Exacerbate the Risk of Validator Concentration


Because Coinbase already plays a custodial role and has the ability to obtain substantial control through ETFs, the research focuses more on Coinbase as a potential risk factor.

CryptoCaster Quick Check:

According to recent research from S&P Global, spot Ethereum exchange-traded funds (ETFs) could increase validator concentration risks within the Ethereum network if approved.

Stay in the know on crypto by frequently visiting Crypto News Today

The study, “U.S. Ether ETFs Could Exacerbate Concentration Risk,” clarifies how spot Ethereum funds—especially those that involve staking—may affect the concentration of validators on the Ethereum network.

“An increase in ether staking ETFs could affect the mix of validators participating in the Ethereum network’s consensus mechanism. The participation of institutional custodians could reduce the current concentration on the Lido decentralized staking protocol. However, it may also introduce new concentration risk, particularly if a single entity is chosen to stake the bulk of ether included in these ETFs,” stated the analysis.

The main purpose of traditional spot traded products, such as spot Bitcoin ETFs, is to mirror the asset’s market price while safeguarding their holdings in digital vaults. But what makes Ethereum special is its staking feature, which rewards users by locking up cryptocurrency to support network functions and safe transactions. Staking entails a risk of “slashing” in the event that validators perform poorly or behave maliciously, despite the possible rewards.


The study indicates that while spot Ethereum ETFs are unlikely to impact the composition of validators, staking-enabled Ethereum ETFs, like those proposed by Ark Invest and Franklin Templeton, have the potential to grow sufficiently large to notably affect validator dominance.

“Spot ether ETFs that simply hold ether will not affect the validator mix in Ethereum’s consensus mechanism. Spot ether ETFs that include staking, however, will do exactly that–at least if inflows are high enough,” added the analysis. “U.S. spot ether ETFs that incorporate staking could become large enough to change validator concentrations in the Ethereum network, for better or worse.”

The research from S&P Global also draws attention to particular issues with Coinbase and Lido. Though for somewhat different reasons, both entities pose a risk to validator concentration.

Although Lido owns almost 33% of staked Ethereum, the research indicates that due to regulatory and risk concerns, US institutions launching Ethereum staking ETFs are unlikely to work directly with Lido. These ETFs may choose to stake their investments with regulated digital asset custodians instead, which could lessen Lido’s hegemony. But this change begs questions about Coinbase’s involvement.

According to the research, there is a risk that Coinbase, a large exchange with substantial control over validators, will use ETFs to increase its Ethereum stake and thus increase concentration. Furthermore, concentration may be made worse by Coinbase’s dual responsibilities as custodian for several Bitcoin ETFs and possible participation in Ethereum ETFs.

However, the way that ETFs stake their investments determines how they affect concentration overall. According to the research, ETF issuers may be able to reduce concentration risk by diversifying their holdings across a range of companies with the arrival of new digital asset custodians.CRYPTOCASTER® - DECENTRALIZED FREEDOM!

We hope you appreciated this article. Before you move on, I was hoping you would consider taking the step of supporting CryptoCaster’s journalism. 

From  Elon Musk, Larry Fink(BlackRock) to Jamie Dimon(JP Morgan Chase) a number of billionaire owners have a powerful hold on so much of the hidden agendas’ which eludes the public concerning the paradigm shift juxtaposed by cryptocurrency and web3 emerging technologies. CryptoCaster is different. We have no billionaire owner or shareholders to consider. Our journalistic efforts are produced to serve the public interest in crypto development and institutional disruptions – not profit motives.

And we avoid the trap that befalls much U.S. and global media – the tendency, born of a desire to please all sides, to engage in false equivalence in the name of neutrality and retail consumer protection. While fairness and transparency dictates everything we do, we know there is a right and a wrong position in the fight against fiat global banking interest and monetary reconstruction precipitated by the emerging crypto ecology.

When we report on issues like the FTX, Binance and Ripple crisis, we’re not afraid to name who or what is uncovered. And as a crypto sentinel, we’re able to provide a fresh, outsider perspective on the global monetary disruption – one so often missing from the insular American and European media bubble. 

Around the world, readers can access the CryptoCaster’s paywall-free journalism because of our unique reader-supported model. That’s because of people like you. Our readers keep us independent, beholden to no outside influence and accessible to everyone – whether they can afford to pay for news and information, or not.

We thankyou for the on-going support our readers have bestowed monetarily. If you have not considered supporting CryptoCaster, if you can, please consider supporting us just once from $1 or more of Bitcoin (satoshi) or Eth, and better yet, support us every month with a little more. Scroll further down this page to obtain CryptoCaster’s wallet addresses.

Thank you.

Kristin Steinbeck
Editor, CryptoCaster

Please Read Essential Disclaimer Information Here.
© 2024 Crypto Caster provides information. does not provide investment advice. Do your research before taking a market position on the purchase of cryptocurrency and other asset classes. Past performance of any asset is not indicative of future results. All rights reserved.

Contribute to CryptoCaster℠ Via Metamask or favorite wallet. Send Coin/Token to Addresses Provided Below.
Thank you!
BTC – bc1qgdnd752esyl4jv6nhz3ypuzwa6wav9wuzaeg9g
ETH – 0x7D8D76E60bFF59c5295Aa1b39D651f6735D6413D
MATIC – 0x7D8D76E60bFF59c5295Aa1b39D651f6735D6413D
LITECOIN – ltc1qxsgp5fykl0007hnwgl93zr9vngwd2jxwlddvqt


You may also like