Vitalik Buterin, the co-founder of Ethereum (ETH), has recently expressed his concerns about the centralization of staking within the Ethereum network. In a blog post, he stated that this is one of the biggest risks to Ethereum’s layer-1. Buterin discussed strategies to mitigate this risk as part of Ethereum’s planned “Scourge” upgrade.
Previously, Buterin had talked about Ethereum’s transformative “Merge” and “Surge” upgrades, which aim to enable 100,000 transactions per second across both Layer 1 and Layer 2 networks. However, the focus has now shifted 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 highlighted two critical areas where centralization risks arise: block creation and staking capital provision. He expressed concerns that economic pressures could lead to greater centralization, which could undermine Ethereum’s decentralized nature.
Buterin specifically emphasized the risks associated with block creation and maximum extractable value (MEV), where certain individuals can extract value by selecting specific transactions to include in blocks. Currently, around 88% of Ethereum blocks are controlled by only two parties, increasing the risk of censorship and transaction delays. This could have serious consequences for time-sensitive transactions such as liquidations or token swaps.
To address this issue, Buterin suggested the possibility of using an encrypted mempool, which would make it more challenging for block proposers to censor transactions. However, he noted that the design of such a system should be robust, reasonably simple, and ready to be 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 acknowledged that there are tradeoffs with these solutions, as stakers’ ability to choose transactions could also lead to centralization.
In terms of capital centralization, Buterin raised concerns about the current level of staked ETH, which is around 30% of the total Ethereum supply. While this is enough to protect against a 51% attack, Buterin warned of potential dangers if the percentage of staked ETH approaches 100%. These dangers include weakening penalty cuts, excessive ETH issuance, and the risk of a single liquid staking token dominating the Ethereum ecosystem.
In conclusion, Buterin recommends a cautious approach, suggesting a “wait and see” strategy where stakers’ powers are initially limited and gradually expanded as the network learns more about the impact of MEV on a live system.
