Vitalik Buterin warns of Ethereum centralization risks due to over-staking and proposes solutions to maintain decentralization and scalability.
Vitalik Buterin, co-founder of Ethereum, has raised concerns about centralization in Ethereum’s Proof of Stake (PoS) model. He explained that large stakers could overpower smaller ones due to scale economies. As a result, smaller stakers might leave and join bigger staking pools. This could lead to a higher risk of a 51% attack, threatening network security.
Buterin also pointed out that larger network participants could use better algorithms in order to maximize their revenues. Such participants could secure the Maximum Extractable Value (MEV) per block. This would enable them to earn more than those who staked small tokens of the cryptocurrency. In addition, it is also evident that the large actors have more capital. To take the example of locked capital risk, they could avoid this by employing liquid staking tokens (LSTs). However, this changes the risk to the side of the smaller participants.
Otherwise, Buterin said that Ethereum could face threats to decentralization if these problems are not solved. This would make Ethereum less secure, and as we all know, blockchain networks primarily rely on security as a key strength. To avoid this problem, Buterin also proposed decentralizing the construction of blocks. He suggested that “committee inclusion lists” be adopted to increase the number of people in the block formation. This would make sure that the small stakers have a chance to stake and compete.
Buterin Explains Risks of Over-Staking, Proposes Ethereum Changes
The second problem that Buterin mentioned was over-staking. At the moment, only about 30% of ETH is staked. Buterin said that if this percentage increases to a certain level, it may not be optional anymore and staking will be compulsory. This would mean that the ETH holders would have no option but to delegate their votes through the providers. As a consequence, centralization would continue to rise more so than it has been portrayed by the current statistics.
Buterin also proposed that the issuance curve of Ethereum be adjusted in order to fight against over-staking. The incentives for staking should decline should there be a high staking of ETH. This would make it less inviting for large players to control the staking process.
However, Buterin reiterated faith in Ethereum, stating that it is a project worth the risks of attack. As a remedy he mentioned that the company can still continue with the scalability upgrades. In his post “Possible Futures of the Ethereum Protocol, Part 2: The Surge,” Buterin revealed plans to increase Ethereum’s transaction throughput to over 100,000 transactions per second (TPS). This will be achieved through data availability sampling and rollup technology.
Lastly, there was a discussion of integrating Layer 1 and Layer 2 solutions. This will ensure that there is a single, easily manageable Ethereum ecosystem, increasing scalability while maintaining decentralization.
