Vitalik Buterin, one of the key creators of Ethereum, has proposed a plan aimed at increasing decentralization within the cryptocurrency by introducing penalties for validators based on their deviation from the average failure rate.

On March 27th, Buterin presented the idea of reinforcing decentralized staking through "anticorrelation incentives" on the Ethereum Research forum. His proposal suggests that validators controlled by the same entity and failing together should be penalized more than if they failed independently.

Buterin pointed out that mistakes made by major players are likely to affect all the "identities" they control, especially if validators are part of the same cluster, leading to correlated failures due to shared infrastructure.

Support for Smaller Stakers

According to Buterin's proposal, penalties for validators should be calculated proportionally to their deviation from the average failure rate. This would mean that if a larger number of validators fail at a certain point, the penalties would be stricter.

Simulation models suggest that this approach could curb the dominance of large Ethereum holders over smaller ones, as larger entities have a higher likelihood of correlated errors leading to abrupt increases in failure rates.

One expected benefit is to promote decentralization by making separate infrastructures economically more viable for each validator, thereby increasing the competitiveness of solo staking against staking pools.

Buterin is also considering additional measures, including various penalty regimes aimed at reducing the advantage of larger validators over smaller ones, and focusing on exploring their impact on geographic and software decentralization.

The proposal does not include a change in the minimum amount for solo staking, which currently stands at 32 Ether, approximately equivalent to $111,500.

Staking pools and services offering liquid staking, such as Lido, continue to gain popularity, allowing participation in staking with a smaller volume of ETH. Currently, Lido manages ETH worth $34 billion, roughly 30% of the total Ethereum supply in circulation.

Developers and supporters of Ethereum have previously raised concerns about the risks associated with Lido's dominance and the potential for "cartelization," which could lead to disproportionate profits compared to non-pooled capital.

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