A report said that the move to proof-of-stake made the Ethereum blockchain more centralized, as only four companies manage 60% of validators.
Morgan Stanley (MS) said in a research report on Wednesday that the crypto ecosystem is becoming less decentralized.
The blockchains themselves may be decentralized, but the report said that as crypto regulation grows, the need to run a large part of the blockchain on a single or small group of cloud providers could be a risk.
The report said that 65% of Ethereum’s nodes are hosted in the cloud, and half of these use Amazon Web Services (AWS). This could be a problem if some service providers decide to block some users or crypto products or if servers go down for a long time.
Morgan Stanley says that some parts of the crypto ecosystem are becoming less decentralized and more dependent on individual services because “many applications, code, services, and companies are feeding into the underlying decentralized blockchains.”
Morgan Stanley says this isn’t surprising because “centralization is a natural progression of the financialization of cryptocurrency markets,” but it does bring new problems.
Since the Ethereum blockchain switched to proof-of-stake (PoS) last month, a change called the Merge, validators now approve transactions, and a report says that only four companies control 60% of these validators. The Ethereum community knows about this problem with centralization and is working on possible solutions.
The bank said that the biggest decentralized autonomous organizations (DAOs) are also becoming more like centralized companies. For example, the bank pointed out that the decentralized exchange Uniswap recently voted to set up a foundation with a management team, advisers, and a board in charge of their budget.
A DAO is a type of organization or company that is based on blockchain and is often run by a native crypto token. People who own these tokens can vote on important issues that directly affect the DAO, and smart contracts are usually used instead of traditional corporate structures.
The note said that as the digital assets market has made cryptocurrency products that follow rules and attract users, it is starting to look more like the world of centralized banks. At the same time, TradFi is quickly launching crypto products so they can offer their clients services based on transactions and other related services.
