The ETH staking ecosystem is facing significant changes

Recently, the decentralized staking platform Lido announced a 15% layoff, which has drawn industry attention. This decision seems to contradict current market expectations, as most believe that ETH will usher in an institutional-driven bull market, and the SEC has shown signs that it may approve the ETH spot ETF staking application.

As one of the leading projects in the ETH staking field, Lido's recent layoffs are not just a simple organizational adjustment, but also reflect a turning point faced by the entire decentralized staking industry. The official reason given is "for long-term sustainability and cost control", but what lies behind it reflects deeper industry changes: as ETH gradually shifts from retail to institutional investors, the survival space for decentralized staking platforms is being compressed.

Looking back at 2020, when Lido was just launched and ETH 2.0 staking had just begun. The staking threshold of 32 ETH was too high for most retail investors, but Lido's innovation through the liquid staking token (stETH) allowed anyone to participate in staking while maintaining liquidity of their funds. This simple and elegant solution enabled Lido to quickly grow into a staking giant with a TVL exceeding $32 billion.

However, the changes in the crypto market over the past two years have shattered the growth myth of Lido. As traditional financial giants begin to lay out their plans for ETH staking, institutional investors are reshaping the market in ways they are familiar with. In this round of institution-driven ETH bull market, major participants have proposed their own solutions: some institutions choose certain custody platforms, while certain ETFs adopt offline staking entirely.

Compared to decentralized staking platforms, institutions prefer centralized staking solutions. This choice is driven by compliance considerations and risk preferences, but the end result points to one thing: the growth engine of decentralized staking platforms is "stalling".

The Discrepancy Between Institutions and Decentralized Staking

To understand the selection logic of institutions, we first need to look at a set of data: starting from July 21, 2025, the number of ETH queued for unstaking is significantly higher than the number entering staking, with the maximum difference reaching 500,000 ETH. At the same time, certain ETH strategic reserve companies are acquiring ETH in large quantities, with just two companies holding a total of over 1.35 million ETH. A certain Wall Street institution has also been continuously buying after the SEC approved the ETH spot ETF.

This data indicates that ETH is continuously flowing from retail investors to institutions. This drastic change in holding structure is redefining the rules of the entire staking market.

For institutions managing billions of dollars in assets, compliance is always the top priority. When reviewing an institution's application for an ETH staking ETF, the SEC clearly requires the applicant to demonstrate the compliance, transparency, and auditability of its staking service provider.

This is precisely the weakness of decentralized staking platforms. Platforms like Lido have node operators distributed around the world. While this decentralized structure enhances the network's resistance to censorship, it also makes compliance checks extremely complicated. In contrast, the solutions provided by centralized custody platforms are much simpler. They have clear legal entities, well-defined compliance processes, traceable fund flows, and even insurance coverage. For institutional investors who need to report to LPs, the choice is obvious.

When the institutional risk control department assesses the staking plan, they will focus on a core issue: who is responsible if something goes wrong? In the Lido model, if losses occur due to the mistakes of node operators, all stETH holders will share the burden, and it may be difficult to hold specific individuals accountable. However, in centralized staking, service providers will bear clear compensation responsibilities and may even offer additional insurance protection.

Moreover, institutions require not only technical security but also operational stability. When Lido replaces node operators through DAO voting, this "democratic decision-making" actually becomes a source of uncertainty in the eyes of institutions. They prefer to choose partners that are predictable and controllable.

The Impact of Regulatory Easing

On July 30, the SEC announced that it received an application for an ETH stake ETF submitted by a certain institution. On August 5, the SEC issued new guidance: specific liquid staking does not fall under the jurisdiction of securities law.

On the surface, this is long-awaited good news for decentralized staking platforms, but a deeper analysis reveals that it may also be the sword of Damocles hanging over all decentralized staking platforms.

The short-term benefits brought by regulatory easing are obvious, as the tokens of mainstream decentralized staking platforms quickly rose in price after the announcement. This reflects the market's optimistic expectations for the LSD track to a certain extent, and more importantly, the SEC's statement has cleared compliance barriers for institutional investors.

For a long time, traditional financial institutions have been primarily concerned about the potential securities law risks associated with participating in stake activities. Now, this cloud of uncertainty has mostly dissipated, and it seems like it's just a matter of time before the SEC approves ETH staking ETFs.

However, behind this thriving scene lies a deeper crisis in the track. The SEC's regulatory easing has not only opened the door for decentralized platforms but also paved the way for traditional financial giants. When a certain asset management giant begins to launch its own stake ETF products, decentralized platforms will face unprecedented competitive pressure.

This asymmetry of competition is reflected in the disparity of resources and channels. Traditional financial institutions possess mature sales networks, brand trust, and compliance experience, all of which are difficult for decentralized platforms to match in the short term.

More importantly, the standardization and convenience of ETF products have a natural appeal to ordinary investors. When investors can purchase stake ETFs with a single click through their familiar brokerage accounts, why would they bother learning how to use decentralized protocols?

The core value proposition of decentralized staking platforms—decentralization and resistance to censorship—seems weak in the face of institutionalization. For institutional investors pursuing maximum returns, decentralization is more of a cost than an advantage. They are more concerned with yield, liquidity, and operational convenience, which are precisely the strengths of centralized solutions.

In the long run, regulatory easing may accelerate the "Matthew effect" in the staking market. Funds will increasingly concentrate on a few large platforms, while small decentralized projects will face survival crises.

The deeper threat lies in the disruption of the business model. Traditional financial institutions can lower fees through cross-selling, economies of scale, and even provide zero-fee staking services. Decentralized platforms, on the other hand, rely on protocol fees to maintain operations and are at a natural disadvantage in price wars. How will a decentralized platform with a single business model respond when competitors can subsidize staking services through other business lines?

Therefore, while the SEC's regulatory easing has brought market expansion opportunities for decentralized staking platforms in the short term, in the long run, it seems more like opening Pandora's box.

The entry of traditional financial forces will completely change the rules of the game, and decentralized platforms must find new ways to survive before being marginalized. This could mean more radical innovation, deeper DeFi integration, or some degree of centralized compromise.

At this moment of the arrival of regulatory spring, decentralized staking platforms may not be facing a time of celebration, but rather a turning point of survival.

The Risks and Opportunities of the Ethereum Staking Ecosystem

Standing at the critical junction of 2025, the Ethereum staking ecosystem is undergoing unprecedented changes. Someone's concerns, the shift in regulation, the entry of institutions—these seemingly contradictory forces are reshaping the entire industry landscape.

Indeed, challenges are real. The shadow of centralization, intensified competition, and disruptions to business models, each could become the last straw that breaks the decentralized ideal. But history tells us that true innovation often emerges in the midst of crisis.

For decentralized staking platforms, the wave of institutionalization is both a threat and a driving force for innovation. When traditional financial giants bring standardized products, decentralized platforms can focus on the deep integration of the DeFi ecosystem; when price wars are unavoidable, differentiated services and community governance will become the new moats; when regulation opens the door for everyone, the importance of technological innovation and user experience will be further highlighted.

More importantly, the expansion of the market means that the cake is getting bigger. When staking becomes a mainstream investment choice, even niche markets are sufficient to support the prosperous development of multiple platforms. Decentralization and centralization do not have to be a zero-sum game; they can serve different user groups and meet different needs.

The future of Ethereum will not be determined by a single force, but will be shaped collectively by all participants.

Tides rise and fall, only the fittest survive. In the crypto industry, the definition of "fittest" is much more diverse than in traditional markets, which may be the reason we should remain optimistic.