Author: Alon Muroch, Founder of SSV Labs
Merely opening the green light for institutional staking does not herald the long-term future of Ethereum. As institutions enter the Web3 ecosystem, they need to recognize that ETH is not an asset that can be fitted into existing traditional financial models; it is a world computer. Unless institutions can embrace the decentralized ethos of Ethereum and its tokens, their core infrastructure and intrinsic claims are destined to fail.
The internet bubble serves as a cautionary tale for Ethereum adopters. Part of the reason for the bubble's burst was that institutions dove headfirst into the lucrative market potential of consumer internet without fully understanding its underlying infrastructure. The gap between capital and understanding bred dysfunction.
Institutions should not repeat this mistake. As they turn to on-chain activities, they should adopt a more balanced approach: actively supporting network health while accumulating economic returns and respecting the underlying spirit of blockchain.
ETH staking embodies this balance. In August 2025, the U.S. Securities and Exchange Commission (SEC) announced that "most staking activities" do not fall under securities, emphasizing that the rewards from staking ETH are earned through governance actions that maintain the network. The SEC guidelines and other significant legislation mark a milestone decision that opens the floodgates for institutional capital, with over 10% of ETH now held in ETFs or strategic reserves.
However, as institutions flood in, they must remember that while staking their ETH reserves is a potentially profitable activity, its primary function is to support the underlying infrastructure.
Through staking, validators lock up ETH as collateral. If they correctly validate transactions, they earn rewards, but if they act maliciously or fail to fulfill their duties, their stake is penalized. This economic incentive is distributed among thousands of independent validators, and it is this aspect that keeps the network secure and running smoothly.
To ensure regulatory compliance and solidify the future value of their assets, institutions must make meaningful contributions to maintaining Ethereum's decentralized network through staking while minimizing any risks of centralization or downtime.
The total amount of staked ETH is approaching 36 million (about 29% of the supply), with approximately 25% held by centralized exchanges. As ETFs supporting staking may encourage institutional interest in staking, ETH is nearing a concentration threshold, at which point the decentralization of the Ethereum network may be meaningfully questioned, jeopardizing network security and undermining the intrinsic purpose of the staking mechanism.
There are several avenues to address centralization risks, including encouraging client diversity, improving the geographical distribution of infrastructure, and supporting staking protocols with decentralized node operators.
Relying solely on piecemeal strategies may prove insufficient. What is needed is a comprehensive infrastructure solution that can securely support global institutions.
Distributed Validator Technology (DVT) is an obvious solution. By distributing validator responsibilities across multiple machines and decentralizing their accountability among different nodes, it not only ensures that the infrastructure maintaining validators is decentralized but also that its functionality is decentralized, ensuring the arrangement of validators within a global independent node network.
Through threshold cryptography and multi-signature validation, DVT prevents any single operator from controlling or compromising validators. In contrast, its distributed architecture prevents single points of failure in the network, enhancing resistance to censorship, interruptions, malicious activities, and attacks.
If institutions and exchanges adopt this setup, it will eliminate the risk of uneven distribution of staked ETH and enhance the security and capital efficiency of their staking. DVT significantly reduces the risk of slashing through fault-tolerant multi-party operations while achieving approximately 99% uptime.
DVT eliminates potential single points of failure that could expose institutions to validator penalties, thereby maximizing returns. Institutions using such infrastructure will have a superior risk profile compared to alternatives, with higher fault tolerance and guaranteed regulatory compliance due to their maintenance of Ethereum network health.
The Pectra upgrade in May 2025 raised the maximum staking amount per validator to 2048 ETH. This is essentially a positive development for institutions with large ETH holdings and directly attracts ETH reserve companies. However, validators with such large ETH delegations do pose inherent risks of centralization. DVT allows for large staking delegations while maintaining decentralization without the operational overhead of spreading them across many validators to mitigate these risks.
The widespread adoption of solutions like DVT will lead to a virtuous cycle where each delegation of staked ETH provides institutional investors with predictable, secure returns while reinforcing the underlying asset and ensuring a decentralized distribution of validators. DVT not only demonstrates how the spirit of decentralization can be hardcoded into institutional adoption but also shows how global finance and the crypto-punk ethos can coexist productively.
The lesson institutions must internalize is that ETH cannot simply be viewed as another treasury asset. It represents ownership of a decentralized computing network, and its value proposition entirely depends on maintaining that decentralization. Institutions staking without regard for network health are undermining their own investment thesis: a centralized Ethereum is a contradiction in itself.
This does not mean sacrificing returns; rather, it means recognizing that sustainable profits depend on healthy infrastructure. By adopting DVT and other technologies that protect decentralization, institutions can maximize their economic returns while safeguarding the networks in which they now hold significant stakes.
The choice is simple: build the future of Ethereum on a solid distributed infrastructure, or risk regulatory uncertainty and technological risks that could undermine the intrinsic value driving the most significant wave of cryptocurrency adoption in history.
Author: Alon Muroch, Founder of SSV Labs.
Related: The Marshall Islands launches a universal basic income (UBI) program using digital wallets.
This article is for general informational purposes only and does not constitute and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original article: “Opinion: Institutions Must Stake Ethereum on Decentralized Infrastructure”
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