Vitalik Proposes Solutions to Solve Staking Centralization on Ethereum
After a series of posts sharing his plans to improve Ethereum after The Merge upgrade and outlining core goals for The Surge phase, on October 20, Ethereum co-founder Vitalik Buterin continued to present his solutions to solve the problem of staking centralization on Ethereum in The Scourge upgrade.
The Scourge Upgrade
The Scourge is an important part of Ethereum's roadmap, aiming to address the shortcomings surrounding MEV and the risks of liquid staking dominance from Lido Finance. The goal of The Scourge is to minimize the risk of centralization and prevent organizations from exploiting the Proof-of-Stake (PoS) mechanism to appropriate value from users, protecting the decentralization of the Ethereum network.
Block Construction: Large staking organizations can use complex algorithms such as MEV extraction to generate higher returns per block.
Staking capital provision: Large projects such as Lido Finance can issue liquid staking tokens (LST) to solve the problem of "holding capital" when locked during staking, thereby increasing the ability to manipulate the network.
Risk Mitigation Solutions
- Inclusion Lists: A solution to ensure fairness in the transaction processing on Ethereum.
Simply put, when a new block is created, there are many transactions that need to be processed. Some block creators can select transactions that are beneficial to them and ignore or censor other transactions. With incubation lists, proposers are responsible for proposing a list of transactions that need to be included in the block.
Then, block builders will create blocks based on transactions from this list, but they can only rearrange the order of transactions or add their own transactions, but cannot remove transactions from the list proposed by the proposer.
- Two-Tiered Staking: This solution divides staking into two groups with different staking requirements:
The higher value ETH staking group will be primarily responsible for ensuring network security.
The lower staking group (1 ETH) will take on other tasks such as confirming small transactions or supporting the transaction list creation process.
- Stake Capping: Limits the total amount of ETH that an individual or organization can stake on the network. The purpose of this solution is to prevent large stakers from holding the majority of staked ETH, thereby reducing the risk of power centralization.
- Reduce MEV Mining Ability: Limits the excessive benefits that institutional stakers gain from MEV through:
MEV Smoothing: Equally distributes MEV profits to all stakers, reducing the incentive to centralize power.
MEV Burn: Burning a large portion of the MEV value instead of allowing block creators to collect all of it.
- Mempools Encryption: This solution encrypts transactions before they are published in the mempool, preventing block creators from previewing transactions and exploiting information to optimize profits such as sandwich attacks.
- Solo Staker Incentives and Dedicated Staking Hardware: Vitalik proposes rewards or airdrops specifically for solo stakers, while providing easy-to-use and low-cost hardware solutions such as Dappnode.
Finally, Buterin emphasized that the process of mitigating the risk of centralization in staking needs to be done carefully, ensuring a balance between decentralization and network performance. In addition, he also acknowledged that some solutions may create new challenges, especially when institutional stakers can still maintain their dominance.
Ultimately, Vitalik went on to assert that Ethereum is not just a Layer 1, but also a large ecosystem, where decentralization is the core factor that helps protect and promote the sustainable development of the entire ecosystem.
The founder of Ethereum has been quite active in cyberspace recently, from sharing his personal views to publicly selling coins or supporting bets on the Israel-Lebanon conflict on Polymarket; agreeing with the idea of reducing the minimum ETH staking level to 16-24 coins...
