Vitalik Buterin, the co-founder of Ethereum, has recently expressed concerns about the centralization of staking within the network. In a blog post, he refers to this as “one of the biggest risks to Ethereum layer-1” and discusses strategies to mitigate this risk as part of Ethereum’s planned “Scourge” upgrade.
Previously, Buterin has spoken about Ethereum’s transformative upgrades, known as the “Merge” and “Surge,” which aim to achieve 100,000 transactions per second across both Layer 1 and Layer 2 networks. However, he has now shifted his focus to the dangers of staking centralization in proof-of-stake and its potential impact on the long-term health of the network.
In his blog post, Buterin highlights two critical areas where centralization risks arise: block creation and staking capital provision. He raises concerns about the economic pressures that could lead to greater centralization, which would undermine Ethereum’s decentralized nature.
Buterin specifically points out the risks associated with block creation and maximum extractable value (MEV). Currently, around 88% of Ethereum blocks are controlled by just two parties, which increases the risk of censorship and transaction delays. This could have significant consequences, especially for time-sensitive transactions like liquidations or token swaps.
To address this issue, Buterin suggests the possibility of using an encrypted mempool, which would make it more difficult for block proposers to censor transactions. However, he emphasizes the need for a robust and simple design that can be easily included in an upgrade.
Buterin is also exploring other approaches to combat MEV, such as the use of inclusion lists and multiple concurrent proposers. However, he acknowledges the tradeoffs involved, as these solutions could potentially lead to centralization.
In terms of the centralization of capital, Buterin raises concerns about the percentage of ETH staked approaching 100%. He warns of several potential dangers, including the weakening of penalty cuts, excessive ETH issuance, and the dominance of a single liquid staking token in the Ethereum ecosystem.
Buterin recommends a cautious approach, suggesting that stakers’ powers should be limited initially and gradually expanded as the network learns more about the impact of MEV on a live system.
It is important to note that this article does not provide investment advice.
