Lido's Shrinking Share Is a Win, Node Chief Argues

"I don't think Lido is dominant at all at this point," Shannon told Sandmark. "The three US-registered entities – companies with public shareholder bases – that's dominance, and it's a lot scarier for the health of the network than a distributed protocol."

Shannon's reference is to the cryptocurrency exchanges Coinbase, Kraken and Binance, which together account for around 30% of staked ETH, the vast majority of it run in-house by a few operators. Lido, by contrast, operates through 700 node operators – the entities that run the validators securing the Ethereum network – spread across three module types, with a fully permissionless participation track. The protocol's share now sits at around 20%.

Shannon's team oversees both the curated module – 34 professional operators running around 88% of the protocol – and the permissionless Community Staking Module (CSM), which currently accounts for 8.5% of Lido's share. Shannon expects that figure to reach around 15% within the next year, supported by a second permissionless module – effectively CSM with support for 0x02 validator keys – that will be proposed to the DAO, Lido's decentralized governing body, where token holders vote on protocol decisions.

The newer Simple DVT vaults, which went live in January, use Distributed Validator Technology (DVT) – a system that splits validator duties across multiple operators in different locations and on different software clients, improving resilience and reducing single points of failure. Uptake has been slow, Shannon said, primarily because of the entry queue: institutional inflows from Binance and the asset manager Grayscale have absorbed most available capacity. Binance has deployed around 4.6% of its ETH and has indicated it will stop at 5%.

"Once that flow eases, we expect to see significantly more uptake of Simple DVT vaults for both DeFi strategies and institutional staking," Shannon said.

The vaults are designed to encourage decentralization structurally: the more ETH a given node operator accumulates within a vault, the less favourable the terms for minting stETH against that position, pushing large institutional players to spread stakes across multiple operators.

On the institutional front, Shannon pointed to the asset manager WisdomTree's European ETP – a regulated exchange-traded product 100% backed by stETH – as a significant milestone, and confirmed that another asset manager, VanEck, has filed an S-1 – a registration document filed with the US Securities and Exchange Commission (SEC) – for an stETH ETF, which would mark the first regulated stETH product in the US market. Lido is in active conversations with other regulated institutions about similar products and about DeFi strategies using Simple DVT vaults.

On the systemic risk question, Shannon was direct. At a 20% share, he said, the concern is overstated. Even above 33%, the worst-case scenario – a period of non-finalization on Ethereum, in which the network temporarily loses its ability to confirm transactions as final – would primarily harm stETH holders and Lido's own node operators, making malicious action counter to every participant's interest. Lido also holds better execution layer and consensus layer client diversity than the network average, meaning a software client bug would likely affect it less than other protocols.

Shannon identified the deeper risk elsewhere: a broader shift in the Ethereum ecosystem away from decentralization and towards yield maximization. The rise of restaking – redeploying staked ETH across additional protocols to earn extra yield – the growth of liquid restaking tokens (LRTs), and declining per-validator rewards as total staked ETH increases have all pushed participants towards higher-risk strategies. Shannon also pointed to active discussions about changing Ethereum's issuance curve – the rate at which new ETH is created and distributed as staking rewards – as a source of uncertainty.

"Lido is trying to be a stable, low-risk LST serving institutions and basic staking demand," he said. "When the focus shifts to leveraging everything up while paying less attention to the decentralization of the underlying staking network, that is quite negative for the credible neutrality and censorship resistance of Ethereum."

The risks of higher-yield strategies were illustrated sharply on 18 Apr, when Kelp DAO – a liquid restaking protocol that lets users deposit staked ETH to earn additional yield – suffered a $293mn exploit. An attacker manipulated its cross-chain bridge to drain around 116,500 rsETH tokens, roughly 18% of circulating supply, using the stolen funds as collateral on lending protocols including Aave, a decentralized lending platform, and creating over $236mn in bad debt before markets were frozen. The incident – the largest single DeFi exploit of 2026 – prompted users to reassess exposure to higher-risk restaking protocols, with lower-risk alternatives including Lido among the beneficiaries.

Shannon cautioned against focusing too narrowly on liquid staking concentration, arguing the real systemic risk on Ethereum lies with centralized exchanges collectively running roughly double Lido's total stake, with far less transparency and distribution. The liquid staking market, he said, has become more distributed over the past six to 12 months than at any point in recent history.

"I want to see institutions choose decentralized options," Shannon said. "They're not always the easiest path, but they're the right one for the long-term health of the network."