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Vitalik Buterin Announces Ethereum Rainbow Staking As SEC Moves Diminish ETF Chances

Last Updated March 22, 2024 10:09 AM
Teuta Franjkovic
Last Updated March 22, 2024 10:09 AM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • Vitalik Buterin highlights the growing risk of centralization in ETH staking.
  • Buterin proposes a new model that differentiates between “heavy” and “light” staking with distinct roles and rewards.
  • “Rainbow Staking” needs work, Buterin says. Focus on motivating “lazy stakers” for long-term security.

During a recent presentation  at ETHTaipei, Ethereum founder Vitalik Buterin unveiled “Rainbow Staking” as a new way to address increasing concerns over centralization in staking.

Buterin highlighted  the risks associated with current staking practices and the use of liquid staked tokens within the Ethereum ecosystem. He also emphasized the need for measures to mitigate these issues.

Buterin Pushes for ETH Stakers, Lido Leads Liquid Staking Charge

The platform’s founder pointed out  the need for more solo stakers on Ethereum. He attributed this scarcity to both technical and financial hurdles.

The technical challenges involve the complexity of running one’s own node, while financial barriers stem from the need to deposit 32 ETH (worth around $113,233) to become a network validator.

As a result, many people who might want to stake ETH opt for liquid staking solutions to get involved indirectly.

Among these liquid staking solutions, Lido stands out with a commanding 61.36% market dominance.

Kasper Rasmussen, a contributor at Lido DAO, told CCN that the implementation of EIP-4844 with the Dencun hardfork marks a crucial step forward for Ethereum. This development begins The Surge, a key part of Ethereum’s roadmap, focused on rollup-centric strategies.

He said:

“The introduction of proto-danksharding ushers in a new era for L2s, streamlining the cost-effectiveness of L2s and making them more accessible to both users and institutional participants. Lido DAO contributors are incredibly excited for what the future holds for L2s and are all collaborating to enrich and expand their adoption throughout Ethereum.”

Unveiling “Rainbow Staking” to Diversify ETH Staking Landscape

Buterin proposed  “Rainbow Staking” as a solution to address the centralization concerns surrounding Ethereum staking.

He stated :

“The idea here is that you explicitly split up into two kinds of staking, and you call it heavy staking and light staking.”

In this scenario, heavy staking faces the possibility of being slashed, and is required to sign in every slot. On the other hand, light staking, which is exempt from slashing, participates in signing slots via a lottery system.

The aim is to distinctly differentiate between these two staking methods, potentially mandating that both heavy and light stakers approve a block for it to be finalized. This seeks to amalgamate the security benefits of both heavy and light staking.

He explained :

“You basically try to explicitly separate out those two and potentially require both heavy stakers and light stakers to sign off on a block in order for the block to get finalized. So you try to add the security of both of those approaches together.”

Can Rainbow Staking Save Ethereum?

Rainbow Staking model designed with the goal of preventing any single liquid staked token from becoming so dominant that it overshadows ETH as the primary currency on the Ethereum network.

It also aims to enhance the attractiveness and economic benefits of solo staking, encouraging more decentralized participation.

Buterin acknowledged further research and development were necessary to refine Rainbow Staking into a sustainable and effective staking design for Ethereum’s long-term future.

The crypto billionaire highlighted  the importance of addressing the underlying intentions behind enabling “lazy ETH holders” who seek rewards to contribute to the security of the Ethereum network.

He said :

“To me, the biggest questions here are not even technical; they’re philosophical.”

SEC Scrutinizes Ethereum’s Shift to Proof-of-Stake, Casting Chill on Crypto ETFs

In the meantime, the United States Securities and Exchange Commission (SEC) decided to advance a legal approach aimed at classifying Ethereum, the world’s second-largest cryptocurrency, as a security. This effort is part of an investigation involving subpoenas issued to American companies.

This move by the SEC, particularly its scrutiny of Ethereum’s Proof of Stake (PoS) mechanism, represents a potential challenge for the cryptocurrency sector. It particularly affects the anticipation surrounding the approval of Ethereum-based Exchange-Traded Funds (ETFs). A range of entities, including BlackRock, have proposed funds. The optimism for such approvals had been bolstered by the SEC’s earlier approval of several Bitcoin ETFs in January.

The SEC’s ongoing investigation is compelling companies to submit documents and financial records associated with the Ethereum Foundation, a nonprofit entity tasked with overseeing the development and governance of the Ethereum blockchain.

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