Ethereum co-founder Vitalik Buterin has raised concerns about the risks associated with the network’s current proof-of-stake model, particularly the centralization of staking. In the third part of his recent essay on Ethereum’s future, Buterin outlined potential threats to the network’s decentralization, noting that they could lead to security vulnerabilities and reduced fairness for more minor participants.
Buterin emphasized that large stakers could dominate the network by pooling resources, resulting in smaller stakers joining large staking pools to remain competitive. This concentration of power may pose significant risks, including censorship and the potential for a 51% attack. Centralization also creates a situation where only a few large stakers extract the majority of the value from the network.
Centralization in Block construction and staking capital
Vitalik Buterin pointed out that two key areas face risks of centralization: block construction and staking capital provision. In Ethereum’s current model, block production is a two-part process involving validators and builders. Validators are responsible for processing and attesting transactions, while builders, typically more extensive and centralized entities, choose the contents of the blocks.
On-chain data shows that two significant entities currently select the contents of nearly 88% of Ethereum blocks. This gives them considerable influence over which transactions are processed and in what order. Although this doesn’t result in complete censorship, Buterin noted that such dominance could delay transactions from an average of 6 seconds to up to 114 seconds in some cases, particularly in situations like DeFi liquidations. This delay could open doors to market manipulation.
Ethereum slot share since merge. (Source: Buterin’s blog)
Decentralizing Ethereum staking: Proposed solutions
Buterin outlined potential solutions to address the risks of centralization in Ethereum staking. One of the leading proposals is an inclusion list mechanism that would alter the block production process. Under this system, the staker, rather than the builder, would be responsible for selecting the transactions to include in the block. Builders would still order the transactions, which may consist of some of their own, but their influence would be reduced.
Another alternative under consideration is the multiple concurrent proposers (MCP) approach, such as the BRAID proposal. This method would distribute block production responsibilities across numerous entities. By decentralizing the block-building process, MCP schemes could allow more minor participants to engage more effectively in staking without requiring advanced resources.
These proposals aim to prevent large stakers from dominating the network and ensure that more minor participants can continue to earn revenue in a more decentralized environment.
Overstaking and liquid staking protocols: additional concerns
Beyond centralization, Buterin expressed concerns about the potential consequences of overstaking. Approximately 30% of the total ETH supply is staked, a figure deemed sufficient to secure the network. However, as liquid staking protocols grow in popularity, more ETH could become staked, potentially leading to increased centralization as more holders delegate their tokens to large liquid staking pools.
Some have proposed a cap on staking or introducing a two-tiered system to address this. While no decisions have been made, Buterin emphasized that any solution will significantly impact Ethereum’s future and needs to be carefully evaluated to avoid unintended consequences for the broader ecosystem. In his essay, Buterin highlighted the importance of continuing discussions within the Ethereum community to mitigate these risks and preserve the network’s decentralized and secure nature.
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