The Transformation of the Ethereum Staking Ecosystem: Opportunities and Challenges Coexist

Against the backdrop of most people's expectations for an institution-driven ETH bull market and the possible approval of ETH spot ETF staking applications by regulators, the news that the decentralized staking platform Lido announced a 15% layoff is surprising. This decision is not just a simple organizational adjustment; it also reflects a turning point faced by the entire decentralized staking industry.

The official explanation states that this move is for "long-term sustainability and cost control," but what it reflects is a deeper industry change: as ETH gradually flows from retail investors to institutional investors, the survival space for decentralized staking platforms is continuously being compressed.

Looking back at 2020, Lido had just launched, and ETH2.0 staking had just begun. At that time, the 32 ETH staking threshold was too high for most retail investors, but Lido innovatively introduced the liquid staking token (stETH), allowing anyone to participate in staking while maintaining liquidity of their funds. This simple yet clever solution enabled Lido to grow into a staking giant with a TVL of over $32 billion in just a few years.

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 put forward their own proposals, but all of them tend to favor centralized staking solutions over decentralized platforms. This choice takes into account compliance factors and reflects risk preferences, but the ultimate result points to a trend: the growth momentum of decentralized staking platforms is weakening.

The Discrepancy Between Institutions and Decentralized Staking

To understand the selection logic of institutions, we need to focus on some key data: starting from July 21, 2025, the number of ETH queued for unstaking is significantly higher than the number entering staking, with a maximum difference of 500,000 ETH. At the same time, some ETH strategic reserve companies are purchasing ETH in large quantities; currently, the total amount of ETH held by just two companies exceeds 1.35 million. In addition, some Wall Street institutions have been continuously increasing their holdings after the approval of the ETH spot ETF.

These data clearly indicate that ETH is flowing from retail investors to institutional investors. This drastic shift in holding structure is redefining the rules of the entire stake market.

For institutions managing billions of dollars in assets, compliance is the top priority. When reviewing ETH stake ETF applications, regulators explicitly require applicants to demonstrate the compliance, transparency, and auditability of their staking service providers. This is precisely the weakness of decentralized staking platforms. The node operators of decentralized platforms are distributed around the world, which, while enhancing the network's censorship resistance, also makes compliance reviews extremely complex.

In contrast, centralized solutions are more capable of meeting these requirements. They have clear legal entities, established compliance processes, traceable fund flows, and even provide insurance coverage. For institutions that need to be accountable to investors, the choice is obvious.

The risk control department of the institution is most concerned about the accountability issue when evaluating staking solutions. In a decentralized model, losses caused by operator errors are borne collectively by all token holders, making it difficult to identify specific responsible parties. In contrast, centralized staking service providers take on clear compensation responsibilities and may even offer additional insurance coverage.

In addition, institutions not only need technical security but also operational stability. Decentralized platforms, which replace node operators through community voting, have instead become a source of uncertainty in the eyes of institutions. They are more inclined to choose predictable and controllable partners.

The Dual Impact of Changing Regulatory Attitudes

Recently, regulators received applications for ETH stake ETFs and issued guidelines stating that specific liquid staking does not fall under the jurisdiction of securities law. On the surface, this is good news that decentralized staking platforms have long awaited, but upon deeper analysis, it may become the sword of Damocles hanging over all decentralized staking platforms.

The short-term benefits brought about by regulatory easing are evident, as the token prices of mainstream decentralized staking platforms have surged rapidly. This reflects the market's optimistic expectations for this sector to some extent, and more importantly, the statements from regulatory agencies have cleared compliance barriers for institutional investors.

However, behind this flourishing scene lies a deeper industry crisis. The easing of regulations has not only opened the door for decentralized platforms but has also paved the way for traditional financial giants. When asset management giants begin to launch their own stake ETFs, decentralized platforms will face unprecedented competitive pressure.

The asymmetry of this competition is mainly reflected in the gap in resources and channels. Traditional financial institutions have established sales networks, brand trust, and compliance experience, which are difficult for decentralized platforms to compete with 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 one click through a familiar brokerage account, the motivation to learn how to use decentralized protocols may decrease.

The core value proposition of decentralized staking platforms—decentralization and censorship resistance—may seem less important in the face of the institutional wave. For institutional investors seeking to maximize 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 term, regulatory easing may accelerate the "Matthew effect" in the staking market. Funds may become increasingly concentrated in a few large platforms, while small decentralized projects will face a survival crisis.

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 offer zero-fee stake services. In contrast, decentralized platforms rely on protocol fees to maintain operations, putting them at a natural disadvantage in price wars. When competitors can subsidize stake services through other business lines, decentralized platforms with a single business model will face enormous challenges.

Therefore, although the regulatory easing has brought market expansion opportunities for decentralized staking platforms in the short term, in the long run, it resembles opening Pandora's box. The entry of traditional financial forces will fundamentally change the rules of the game, and decentralized platforms must find new ways to survive before being marginalized. This may mean more radical innovation, deeper DeFi integration, or some degree of centralized compromise.

Future Prospects of the Ethereum Staking Ecosystem

At the critical juncture of 2025, the Ethereum staking ecosystem is undergoing unprecedented changes. Concerns from industry founders, shifts in regulation, and the entry of institutions—these seemingly contradictory forces are reshaping the entire industry landscape.

The challenges are real. The shadow of centralization, intensifying competition, and disruptions in business models can each become the last straw that crushes the ideal of decentralization. But history tells us that true innovation often emerges from 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 become inevitable, differentiated services and community governance will become the new moat; when regulation opens the door for everyone, the importance of technological innovation and user experience will become even more prominent.

Moreover, the expansion of the market means that the overall scale is growing. When staking becomes a mainstream investment option, 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 be shaped by all participants together. In this rapidly changing industry, those participants who are adaptable will ultimately prevail. The definition of "survival of the fittest" in the crypto industry is more diverse than in traditional markets, which may be the reason we should remain optimistic.