S&P Global, a well-known rating agency, warned that market expectations for the U.S. securities regulator’s approval of the Ethereum exchange-traded fund (Ether ETF) may exacerbate the problem of excessive concentration in the Ethereum ecosystem, and for Ethereum ( It may even have a negative effect on the price trend of ETH), mainly because there is a high probability that pledged Ethereum tokens will remain in the hands of a few suppliers after approval is expected or is actually approved.

After the first spot Bitcoin ETF products were approved by U.S. securities regulators in January, investors expected Ethereum’s native token to be the next approved ETF product. Several applications supporting the issuance of spot Ethereum ETFs — namely those from the likes of Ark Investment Management and Franklin Templeton — are proposing to allow staking tokens, where holders of Ethereum tokens lock their tokens in Ethereum on the network to help verify transactions and earn extra revenue.

But analysts Andrew O'Neill and Alexandre Birry from S&P Global said that the size of ETFs for such tokens "could become large enough to change the concentration of validators in the Ethereum network"; in turn, this could This will expose the Ethereum network to operational risks, such as inactivity caused by a single point of failure, or malicious collusion.

O'Neill, co-chairman of S&P Global Digital Asset Research Labs, said in an interview: "Looking at the sheer scale of funds flowing into Bitcoin ETFs since last month, relative to today's pledged Ethereum transaction volume, in terms of concentration risk This may change the future price trend of Ethereum."

Popular cryptocurrency exchange Coinbase Global Inc. is already the second-largest validator (or provider of validating blocks to the blockchain) in the Ethereum network, controlling about 14% of staked Ethereum. Citing data from Dune Analytics and Rated, S&P Global analysts wrote that top provider Lido controls a whopping 31.7% of staked Ethereum tokens.

U.S. investment institutions that issue Ethereum ETFs are more likely to choose large cryptocurrency institutions such as Coinbase as specialized digital asset custodians, and avoid decentralized protocol platforms such as Lido. If Coinbase captures a sizable share of staked Ethereum tokens, it would represent a growing concentration risk for Ethereum, the analysts wrote.

They wrote that Coinbase is already one of three providers of issuance shares outside the United States to bet heavily on Ethereum ETFs. For the recently approved Bitcoin ETF, Coinbase is the most popular custody choice for crypto assets among issuers. CEO Brian Armstrong said on an earnings call last week that the company holds 90% of approximately $37 billion in Bitcoin ETF assets under custody.

Ark and Franklin Templeton said they may diversify the staked share of these Ethereum token assets through one or more third-party token staking providers.

S&P Global analysts wrote that overall, the impact of Ethereum-backed ETF products on Ethereum concentration will depend on whether the issuer spreads its token staked share among multiple cryptocurrency custodians.

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