Reactions continue to emerge following Ethereum co-founder Vitalik Buterin’s latest proposal in “The Scourge,” addressing Ethereum’s future.
Ethereum (ETH) co-founder Vitalik Buterin recently unveiled the final part of his vision for Ethereum’s future, known as “The Scourge.”
— vitalik.eth (@VitalikButerin) October 20, 2024Possible futures of the Ethereum protocol, part 3: The Scourgehttps://t.co/mtzH1ZxTak
(I tried my best to be fair to all sides of the debates here!)
This proposal targets two main issues: the rising centralization in Ethereum’s block construction and the increasing dominance of liquid staking providers.
Buterin’s plan includes introducing a two-tier staking system, capping penalties for stakers at 12.5%, and allowing proposers more control over transaction selection.
The proposal comes after warnings from Toni Wahrstätter, an Ethereum researcher who cited concerns about the centralization of block production before Buterin’s announcement.
— Toni Wahrstätter ⟠ (@nero_eth) October 17, 2024Over the past two weeks, two block builders, Beaverbuild and Titan Builder, have produced 88.7% of all blocks.
This trend is primarily driven by the rise of private order flow (XOF), sold exclusively by certain apps. XOF reduces genuine competition among builders in the block… pic.twitter.com/6o96iLQLCv
According to Wahrstätter, two builders—Titan Builder and Beaverbuild—have produced nearly 88.7% of Ethereum’s blocks in the last two weeks.
This alarming centralization stems from the growth of private order flows, where certain decentralized applications sell exclusive access to their transactions. This minimizes competition, narrowing the transaction pool and threatening decentralization.
Wahrstätter highlighted that while Ethereum is making progress in resisting censorship, this centralization could lead to more severe issues.
In the absence of strong competition, builders could be incentivized to take on more risks, potentially destabilizing the network. According to Wahrstätter, these risks could be minimized with better public access to order flow, encouraging greater competition.
Industry reactions
Industry reactions have trailed Buterin’s proposed solution. Mario Raufal, host of the Crypto Roundtable, supported the proposal, especially the two-tier staking approach.
He believes this change could significantly shake up the dominance of large players in block production and transaction selection, fostering a more decentralized environment.
— Mario Nawfal’s Roundtable (@RoundtableSpace) October 21, 2024VITALIK’S GAME PLAN FOR ETHEREUM STAKING VIBES
Vitalik Buterin just dropped some wisdom on Ethereum’s staking game, and it’s pretty wild.
He’s saying we gotta cap how much Ether we can stake and keep penalties to 12.5% max.
With two players owning 88% of the block scene,… pic.twitter.com/ngmaQLpeCj
However, not everyone agrees. Dr. Jasper, a community advocate for Rocket Pool, expressed skepticism, particularly regarding Buterin’s suggestion to lower terminal inflation.
Jasper believes this could lead to unfavorable outcomes for solo stakers. He pointed out that large liquid staking token providers like Lido and Coinbase, with minimal operational costs, would continue to thrive even with yields as low as 0.7%.
— jasperthefriendlyghost.eth (@drjasper_eth) October 20, 2024I disagree with Vitalik’s characterization of the downstream impacts on solo stakers from lower terminal inflation.
Base case for no action is 100% stake rate by major LSTs that use commission and 16x leverage to provide ~2x solo staker returns while LST holders get roughly… https://t.co/X0hPila5w0
In contrast, solo stakers, who typically have higher fixed costs, would struggle to remain profitable below an 0.8% annual percentage return.
He predicts that as staking rewards dwindle, solo stakers would leave first, with LST providers remaining profitable even as yields approach fractions of a percent.