Lido begins moving $16.5 billion in staked ether to cut validator count by a third

Liquid-staking protocol Lido deployed its largest upgrade since 2023’s V2, starting the consolidation of over 8 million staked ether (stETH), worth roughly $16.5 billion, onto Ethereum’s post-Pectra validator design introduced a year ago.

The move will shrink Ethereum’s total validator count by an estimated one-third, significantly easing the load on the network’s consensus layer, Lido, the largest staking pool on Ethereum, announced Monday via an emailed press release.

The migration will not directly reduce gas fees or speed up transactions for regular users, but it will improve network performance in the background. Lido said it expects the consolidation alone to cut attestation messages across the entire Ethereum network by roughly 29% per epoch, which is a predetermined period of time or a specific number of blocks used to organize and synchronize a blockchain network.

The upgrade transitions Lido’s professional node operators to Curated Module v2 (CMv2). For the first time in Lido’s five-year history, operators in the curated module will be required to back their performance with locked $ETH bonds, adding financial penalties to a system that previously relied on reputation and track record.

“This is the biggest change to how Lido Core staking works since Lido V2,” said Isidoros Passadis, chief of staking at Lido Labs Foundation. “The node operators securing the majority of $ETH staked via Lido are consolidating onto far fewer validators, and for the first time, they’re backing that stake with their own capital, leaving the validator set underpinning Lido Core much leaner and better secured.”

Ecosystem builders had questioned whether enforcing capital bonds would drive away established node operators. Lido confirmed that all 34 of its existing curated operators are expected to transition to CMv2, with none planning to leave because of the bond requirement.

“Rather than replacing the existing reputation-based model, the bonds complement it with real economic accountability,” Will Shannon, head of node operator mechanisms at Lido Labs Foundation, said in an interview with CoinDesk.

He also said the migration will use a separate consensus-layer consolidation queue rather than Ethereum’s deposit and activation queue. Lido estimates that the transition will reduce annual staking rewards across the protocol by about 0.28%. Validators will continue earning rewards until they exit, with any missed rewards limited to the period before their balances reach the new validators.