Vitalik Buterin highlights steps to combat centralization risks in Ethereum's staking ecosystem

Ethereum co-founder Vitalik Buterin stated Thursday at ETH +9.04% Taipei that a primary challenge for Ethereum’s proof-of-stake mechanism is potential centralization stemming from general staking activity.

Regarding staking, Buterin noted a group of “lazy stakers” possessing at least 32 ETH — the threshold to operate a validator — but choose staking pools and liquid staking tools over individual staking. He suggested that these stakers could have opted for “solo staking” to mitigate centralization risks.

“Even if solo staking becomes maximally easy,... lots of people are not going to stake,” Buterin remarked in the speech.

“We're already relying on social pressure and virtue and things other than economic incentives to solve our problems even as they exist today,” Buterin added. “We've done a lot of yelling at people to not all jump into Lido. We've done a lot of yelling at people to use different clients. There [are] a lot of people voluntarily doing those things because it's good for the security of the network, but it's not healthy to over-index on those things.”

The Ethereum liquid staking protocol Lido has a total value locked (TVL) of $34.3 billion, as per The Block’s Data Dashboard. Lido's high TVL makes it the biggest validator on the proof-of-stake blockchain Ethereum, controlling 30% of staked ether. While Lido is a single protocol, it works with over 35 entities to run the nodes and manage the block production process. Other large staking service providers like Coinbase and Binance also control large amounts of ETH stakes.

Potential solutions

In a February post on a forum for Ethereum researchers, Barnabé Monnot of the Ethereum Foundation introduced “rainbow staking” as a strategy to decentralize staking activities. This conceptual framework aims to engage protocol service providers, both “solo” and “professional,” to maximally participate in a differentiated menu of protocol services.

Buterin described the concept’s essence as dividing staking into “heavy” and “light” categories. “Heavy staking is slashable and signs in every slot,” he explained. “If you’re a light staker, basically you only get pulled up to sign once in a while — like it’s a lottery-based system… And whatever you do is not slashable.”

Addressing the future plans, Buterin posed a crucial question: “Long-term, the key question is basically — there are clearly people who have ETH, who have lots of ETH, and who are lazy. What is the approach for them to participate?” He elaborated, “if we don’t give a realistic answer, they’re just going to like dump all their money into a centralized thing… If we have a good answer to this, then I think it should be possible to build a very secure, very robust staking economic design around it.”