Lido’s declining market share, Ethereum ETH
+1.72%
According to JPMorgan analysts, the largest liquid staking protocol indicates that Ethereum is unlikely to be classified as a security in the future.
“Lido’s share of ETH has continued to decline from about a third a year ago to about a quarter currently,” JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday. “This should reduce concerns about concentration in the Ethereum network, increasing the likelihood that Ethereum will not be classified as a security in the future.”
Last October, analysts at JPMorgan expressed concern that platforms like Lido, while being decentralized liquid staking protocols, “entail a high degree of centralization” and pose risks to Ethereum. However, these concerns have seemingly diminished due to Lido’s declining market share.
The analysts pointed out that network decentralization plays a role in determining the classification of a digital token as a security, as highlighted by the release of the ‘Hinman documents’ by the US Securities and Exchange Commission last June. At the time, SEC officials noted that tokens operating on a “sufficiently decentralized” network may not meet the criteria to be considered securities, primarily due to the lack of a controlling entity in Howey’s sense.
Following the publication of the Hinman documents last year, JPMorgan analysts had said that US lawmakers could create a new “other category” to accommodate Ethereum, which would avoid its classification as a security while protecting investors are guaranteed. SEC Chairman Gary Gensler has declined to comment on whether Ethereum is exempt from securities regulations.
Another positive for Ethereum: the recent Dencun upgrade
Ethereum’s recent Dencun upgrade has significantly reduced transaction fees for Ethereum Layer 2 networks, increasing the number of transactions and locking in overall value. This development positions Ethereum as an “ultimate settlement layer for the Ethereum ecosystem,” according to JPMorgan analysts.
“By using Ethereum Layer 2 and emerging Layer 3 solutions, developers can now settle transactions within the Ethereum ecosystem rather than switching to other alternative Layer 1 chains to deploy their applications,” the analysts noted.
Echoing Dencun, the analysts said the next major upgrade on Ethereum’s roadmap is Petra, which is expected to go live later this year. Petra will add Verkle trees to save space and speed up block verification by clearing out old blocks, which the analysts say will further benefit Ethereum.
