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Ethereum Staking? Don’t Put All Your Eggs in One Basket, Says Vitalik Buterin

Last Updated March 28, 2024 9:48 AM
Teuta Franjkovic
Last Updated March 28, 2024 9:48 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Vitalik Buterin proposes a penalty system to fight centralization in Ethereum staking.
  • Validators with correlated failures face steeper penalties.
  • Lido’s dominance raises concerns.

Ethereum co-founder Vitalik Buterin wants to penalized blockchain validators for correlated failures in an attempt to improve decentralization.

This strategy seeks to discourage centralized points of failure, which should help the network’s security and resilience.

Buterin Targets Staking Pools with Correlated Failures

On March 27, Vitalik Buterin shared his insights  on the Ethereum Research forum about fostering decentralized staking by introducing additional incentives against correlation. He proposed  that, if multiple validators under the same control were to fail simultaneously, they should incur a more significant penalty than if their failures were uncorrelated.

He said:

“The theory is that if you are a single large actor, any mistakes that you make would be more likely to be replicated across all ‘identities’ that you control.”

Buterin noted that validators operating within the same group, like a staking pool, tend to face correlated failures. This, he said, was often as a result of using shared infrastructure.

Buterin’s Plan Punishes Validators Who Act Like One

Buterin’s proposal  recommends imposing penalties on validators based on how much their failure rates deviate from the norm. If a significant number of validators failed at the same time, the penalty for each failing validator would increase.

Simulated outcomes of this method indicate  that it might reduce the dominance of large Ethereum stakers, who are more susceptible to causing notable fluctuations in failure rates due to their failures being more likely to coincide.

The proposed strategy aims to bolster decentralization by encouraging the maintenance of distinct infrastructure for each validator and enhancing the economic viability of individual staking.

Buterin also laid out  alternative penalty models which could reduce larger validators’ advantage over their smaller counterparts. He also suggested assessing the proposal’s effects on both geographic distribution and the diversity of Ethereum clients in use.

Lido’s Ethereum Empire: $34 Billion Staked, But Concerns Linger

Buterin did not address the idea of lowering the required amount for solo staking from the current 32 ETH, worth about $111,500.

Staking pools and liquid staking services like Lido continue to attract users by letting them stake smaller amounts of ETH. At the moment, Lido has $34 billion in ETH staked, representing about 30% of Ethereum’s total supply.

Concerns have been raised by Ethereum enthusiasts and developers about Lido’s significant market share and the potential for “cartelization,” where disproportionate profits could be garnered compared to capital that is not pooled.

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