Key Points
- Vitalik Buterin proposes a plan to enhance Ethereum’s staking mechanism’s decentralization and fairness.
- The proposal aims to mitigate the negative impacts of validators’ errors on the network’s efficacy and security.
Ethereum co-founder, Vitalik Buterin, has suggested a new plan aimed at improving the fairness and decentralization of Ethereum’s staking mechanism.
The main aim of this proposed “anti-correlation incentive” program is to lessen the adverse effects that errors made by validators might have on the network’s security and efficiency.
Encouraging True Decentralization
Buterin’s proposal, made on March 27, addresses a significant issue – the potential for centralization among validators. Correlated failures within the network could occur due to multiple validators being controlled by large entities in a single location, thus undermining the system’s decentralized nature.
The anti-correlation incentive program aims to resolve this issue by penalizing validators for frequent errors, encouraging them to diversify their activities.
While Ethereum does have penalty mechanisms for severe violations, these are typically reserved for extremely malicious or egregious conduct.
This proposed initiative would incorporate penalties into routine network operations, promoting genuine diversification among validators. The aim of this strategy is to ensure that efforts to promote decentralization result in significant changes rather than mere superficial adherence.
Despite acknowledging the benefits of large validators, Buterin’s proposal seeks to strike a balance between this and the need for a decentralized and resilient network. The program aims to reduce the occurrence of simultaneous failures and allow larger validators to benefit from economies of scale.
Ethereum’s Centralization Concerns
During the ETHTaipei 2024 conference, Buterin discussed the concept of “rainbow staking,” which encourages service provider diversity to address the centralization issues that Ethereum faces.
He highlighted the primary concern of platforms like Lido Finance dominating the market, holding a significant share of Ethereum-staked assets. It boasts two-thirds of liquid-staked Ethereum and 7% of all Ethereum in circulation.
Mohak Agarwal pointed out the current market distribution of validators, emphasizing that the issue is not just where the stake is deposited, but who controls it. Ethereum faces a significant challenge: a limited set of node operators controlled by centralized entities.
Other aspects of the proof-of-stake Ethereum blockchain are also showing signs of centralization. Nikita Zhavoronkov, a lead developer at Blockchair, expressed concern about Ethereum roll-ups, often referred to as layer 2 solutions. He criticized them, arguing that the so-called “layer 2 revolution” is merely an attempt by private entities to gain control of cryptocurrencies.
The three largest Ethereum layer 2 solutions, Arbitrum, Optimism, and Base, hold all ETH in multisig wallets managed by trusted corporate signers. Although these projects have promised to eventually transfer control of these wallets to their respective communities, this has not yet happened.
Crypto Coffee shared his opinion on the degree of decentralization in layer 2 solutions, stating, “Centralized L2s are a psyop for mainstream sellout to bug-eater overlords.” Attorney Preston Byrne agreed with these views, highlighting the vulnerability of most Ethereum protocols to legal proceedings and subpoenas due to their centralized management.
