Fidelity noted that “with the lowered risk from increased liquidity, the active validator count has risen by 74%,” and said “future roadmap upgrades will become more difficult” with this larger set.

The Shapella upgrade enabled withdrawals, for the first time, for validators who staked their ether (ETH) to secure and validate transactions on the blockchain.

A large validator count is a concern because “bandwidth and latency are critical in a large validator set network, where each validator must independently download the latest data and verify state change proposals within a small time frame,” analyst Daniel Gray wrote, adding that “the larger the block (data), the more computing power needed to process and re-execute the transactions before the next slot.”

Every new validator adds a further connection to the network which increases the overall bandwidth that is needed to maintain consensus, the note said.

“The potential concern is that as the bandwidth requirements grow, the validators that are unable to keep pace will drop from the network – those that drop are more likely to be the self-hosted nodes,” Gray wrote. “If the average household struggles to keep up with the network, there is a risk of increased centralization over time, as the only hardware to survive may live within institution-owned data centers,” he added.

While the growth in the size of the validator set has slowed recently, it’s unclear what the situation may be in a year from now, the report said; “therefore, the possibility of rapid growth could be a problem due to centralization and bandwidth risks.”

The challenge of an expanding validator count has always been viewed as a “good problem” as it represents increased adoption and security for the Ethereum blockchain. Still “it is impossible to accurately predict the staking demand in the future,” the report added.