The topic was raised in a Twitter discussion the day before by Lefteris Karapetsas, founder of analytics platform Rotki. He reached out to several major platforms that are already offering their customers to contribute ETH to the steering committee. The tweet received many responses, with the CEO of cryptocurrency exchange Coinbase Brian Armstrong expressing his views among them.

What’s going to happen to ETH-stacking?

The crux of the dilemma is that a significant portion of validators will earn their income by participating in collective or individual staking through the exchange. The first option is great for those who don’t have a significant amount of funds to participate: still, the requirement for validators is to lock in 32 ETH in the Etherium deposit smart contract.

Growth of ETH volume in the Etherium deposit smart contract

Collective stacking will probably be popular, but in any case a significant portion of validators will interact with the aforementioned smart contract specifically through centralised platforms. They are the weak link because, in theory, regulators could put pressure on a particular exchange to, for example, blacklist certain validators and so on. There are many ways to put pressure, but the outcome is one, a potential blow to the security of the Etherium network.


In other words, the Twitter community as a whole has wondered how US companies would behave if US authorities suddenly decided to create problems for Etherium. In that case, such platforms could end up forcing censorship of what happens on the blockchain, which would negatively affect it.

These fears are somewhat reminiscent of the cryptocommunity's talk that USDT may collapse like UST did, although the latter was an algorithmic stackcoin, and USDT is backed by Tether reserves. In this case, however, the reason for Tornado Cash's problems was the use of the platform for money laundering. And while TC is powered by Etherium, the idea of blocking this network for US citizens seems too unrealistic. So it's worth realising that the current theory is only hypothetical, and that Eth at least has not yet faced a blocking by the authorities.


Eilon Aviv of investment firm Collider VC shared some interesting statistics on this. It turns out that more than 66 per cent of future validators after the merger – i.e. the move to Proof-of-Stake – will operate through centralised platforms. In other words, a significant amount of ETH could come under government sanctions.

Volume of deposited smart contracts by centralised entities

Now back to Lefteris Karapetsas’ question mentioned at the very beginning of the article. It reads as follows.

A question for Lido, Coinbase, Kraken, Staked and Bitcoin Suisse. If regulators ask you to censor the Etherium protocol for validators, will you:
A) Follow the directions and introduce censorship
B) Shut down the Staked service and preserve the integrity of the network
.

According to Decrypt’s sources, Armstrong’s response was as follows.

This is a hypothetical question, hopefully we won’t have to face something like this. But if it does happen, we’d go with option B. We need to pay more attention to detail on a large scale. There could be some other option B or litigation that would help reach a better consensus with regulators.

Coinbase CEO Brian Armstrong

FOR MORE INTERESTING NEWS, LOOK FOR US ON YANDEX.ZEN!

Brian Armstrong’s response is particularly interesting in the context of his cryptocurrency exchange’s growth strategy. It is betting heavily on its steaming service, and internally it is considered “big business”. In addition, according to a recent call to investors from Coinbase’s management, the exchange is also offering participation in staking to institutional clients, i.e. large professional investors.

At the beginning of August, we began offering our first staking service to institutional clients. In the future, we will continue to add more cryptocurrencies available for steaking for our regular and institutional investors.

Steaking on Coinbase

When news of sanctions against Tornado Cash angered the cryptocurrency community, Armstrong also spoke out publicly as follows.

Sanctions against a technology, not a person or organisation, look like a bad precedent to me and should be challenged. Such a thing can create a lot of bad unintended consequences. I hope this is obvious – we will always follow the law.

Obviously Coinbase will try to avoid a direct confrontation with the regulators if they ask for a waiver from staking. But at the same time, the exchange is unlikely to make absolutely all concessions, because a serious damage to Etherium with its participation would also damage its reputation. And this is already fraught with a drop in Coinbase’s share price and other financial problems.


We think that large-scale sanctions against Etherium from the US authorities are unlikely, because even the SEC has previously made it clear that they don't consider ETH to be a security. And while that could change at any time, one would hope for common sense. Still, the prospect of banning such large blockchains would not be good for the economy globally either.


What do you think about this? Share your opinion in our Millionaire Crypto Chat. There we will discuss other important news from the world of blockchain and decentralisation.

SUBSCRIBE TO OUR CHANNEL ON TELEGRAM. ACEMOON IS COMING SOON!