# Let's reduce the churn limit to give us more time to deal with the economic and technical consequences of liquid staking The Ethereum validator set is expanding at a rapid pace. Ever since withdrawals were introduced in April, the validator activation queue has been constantly full. We expected growth in the validator set when withdrawals were implemented, as this reduced staking risks. However, it's fair to say that we may not have fully understood the broad implications of liquid staking at that time. As of now, Lido dominates the liquid staking space, holding nearly one-third of all staked Ether. They've shown no willingness to self-limit, posing a risk to Ethereum's decentralization. A governance attack on Lido could create significant problems for the Ethereum network. Economically, liquid staking has obvious benefits, provided users trust their staking provider. A solo staker is sensitive to staking returns for several reasons: 1. The financial burden of maintaining staking operations, both initial and ongoing. 2. The opportunity cost associated with tying up capital. Liquid staking changes this dynamic considerably. Operational costs are reduced due to economies of scale, and staked capital remains liquid in token form, which is significant. When Ethereum's staking yields were determined in mid-2020, liquid staking wasn't as well understood. Back then, the model assumed stakers would lock up their capital. Today, holders of liquid staking tokens have the flexibility to enter DeFi or sell at any time, altering the initial assumptions considerably. ## Impending Challenges If the deposit queue remains full, we're looking at 50% of all ETH being staked by May 2024, escalating to 75% by September 2024, and potentially 100% by December 2024. The next hard fork after Dencun is not expected until at least May 2024. By that time, the validator set could approach 2 million, a prospect that is raising scalability concerns among Ethereum client developers. Additionally, if the market cap of liquid staking tokens surpasses that of unstaked Ether, we enter unexplored economic territory. We may reach a critical point where even at very low staking yields, This technical problem is exacerbated by an economical one: liquid staking tokens exceeding the remaining (unstaked) Ether market cap brings us in an untested economic regime. A point of no return might be reached when incentives lead to them having similar liquidity and utility in DeFi -- at which even a staking yield close to 0% (but still positive) might be enough to keep the LST attractive. ## The long term solution Unfortunately, we do not currently know an elegant way to deal with this new reality, and I think the Ethereum community will need some time to figure out the future of Ethereum staking. Possible avenues are: * Seeing if Restaking will bring yields that are enough to keep solo staking in the running * Making market entry for new liquid staking participants easier to break the current near-monopoly of Lido * Solving the technical challenges of having several million validators * Allowing higher stake per validator to reduce the number of validators even at very high stake * Should we consider MEV burn or reducing rewards to make staking less appealing? However, most of these are currently lacking any concrete proposals and are untested. Time is a critical factor, and these challenges could manifest within months, not years. ## Short-Term Measures ![](https://storage.googleapis.com/ethereum-hackmd/upload_79480a872c7657d4931ffb0078ab3fdd.png) As an interim solution, slowing down the validator churn rate could be beneficial. Dapplion's [EIP proposal](https://github.com/ethereum/EIPs/pull/7668/files) suggests a way to do this, providing us with the time needed to develop and agree on long-term strategies for Ethereum staking. Without lowering the churn limit now, it's well possible that very drastic action will become necessary down the line.