Vitalik Buterin Addresses Ethereum Staking Centralization Risks

Vitalik Buterin’s Strategies to Prevent Ethereum Transaction Censorship

Vitalik Buterin – In a recent post on October 20, Ethereum co-creator Vitalik Buterin voiced significant concerns regarding the growing centralization of staking on the Ethereum network. He pointed out that economic pressures have led smaller staking pools to migrate towards larger ones, resulting in a disturbing concentration of power. In fact, two entities accounted for 88% of all Ethereum blocks produced during the first two weeks of October.

The Risks of Centralization

Buterin emphasized that staking centralization represents “one of the biggest risks” to the integrity of Ethereum. He warned that such centralization could lead to increased risks of transaction censorship and other crises within the network. Currently, 30% of Ether (ETH) is staked, which is deemed sufficient to protect Ethereum from 51% attacks. However, Buterin cautioned that if nearly all Ether were staked, it could lead to new vulnerabilities.

Impact on Profitability and Obligations

According to Buterin, as staking becomes less profitable, it may impose greater obligations on Ether holders. He expressed concerns that the slashing mechanism, which penalizes validators for misconduct, could weaken, allowing a liquid staking token to dominate network effects traditionally held by Ether.

Proposed Solutions: Capping Staked Ether and Penalties

To address these challenges, Buterin proposed two key solutions:

• Capping the Amount of Ether Staked: By limiting how much Ether a user can stake, Buterin aims to mitigate the risk of centralization.
• Limiting Staking Penalties: He suggested capping penalties at 12.5% of the staked Ether. This could be implemented through a two-tier model, comprising a “risk-bearing” (slashable) tier and a “risk-free” (unslashable) tier.

Block Production Centralization: An Ongoing Issue

Buterin’s worries about block production centralization were underscored by insights from Toni Wahrstätter, an Ethereum Foundation researcher. Wahrstätter highlighted that Beaverbuild and Titan Builder had built 88.7% of all Ethereum blocks in early October. This centralization issue is further exacerbated by Ethereum’s proposer-builder separation method, where builders select the most profitable blocks for proposers.

Consequences of Centralization: Censorship and Delays

While Buterin assured that Ethereum’s security is currently intact, he warned that these centralization trends could lead to significant transaction delays—potentially extending block inclusion times from 6 seconds to 114 seconds. Such delays could facilitate sandwich attacks, enabling block builders to manipulate market conditions, particularly in the realm of decentralized finance (DeFi) liquidations.

Innovative Solutions: Fork-Choice-Enforced Inclusion Lists and BRAID

To combat these centralization issues, Buterin proposed a couple of innovative solutions:

• Fork-Choice-Enforced Inclusion Lists: This approach would return the power of transaction selection to the proposer or staker, allowing builders only to order transactions and insert a limited number of their own.
• BRAID Proposal: This concept suggests dividing the block production process among various actors, each of whom would require only a medium level of sophistication to maximize their revenue.