Ethereum’s Staking Revolution: Vitalik Buterin Unveils New Decentralized Strategy

Vitalik Buterin, the co-founder of Ethereum, is exploring a game-changing system that will spur better decentralization of Ethereum staking.  The proposed solution is to penalize correlated failures among validators.

Buterin shared his plan on the Ethereum Research forum. He suggests that if one validator fails or misbehaves even accidentally, there should be consequences based on the theory that single large actors will likely simulate any mistakes made across all “identities” under their control.

Decentralization in Ethereum Staking

The proposal recommends the introduction of incentives aimed at discouraging correlated behavior in decentralized staking on the Ethereum network. Buterin’s idea involves harsher penalties on validators in cases of correlated failures, especially when under the control of a single entity. The strategy is designed to reduce centralized influence and foster greater decentralization within the Ethereum network.

According to Buterin, validators within the same cluster, such as staking pools, are more likely to experience correlated failures due to shared infrastructure. Thus, when validators are penalized proportionally to the deviation from the average failure rate, it will mitigate the advantage of large Ethereum stakers over smaller ones.

Simulation data indicate that this approach could provide a level playing field and encourage decentralization. Just last month, Buterin was exploring the use of artificial intelligence (AI) in identifying bugs and verifying code on Ethereum.

Implications of Buterin’s Ideas

The possible benefits of Buterin’s proposal include incentivizing decentralization by encouraging separate infrastructure for each validator. This will make solo staking more economically competitive compared to staking pools. Also, Buterin suggests exploring different penalty schemes to minimize the advantage of large validators and assessing the impact on geographic and client decentralization.

Experts acknowledged Buterin’s ability to evolve new strategies like the one aimed at fortifying Ethereum’s defenses against threats posed by quantum computers. These experts say they are adopting a waiting attitude towards this new proposal to see how it will pan out.

Buterin’s proposal was however silent on the possibility of reducing the solo staking amount from the current requirement of 32 Ether (ETH). Currently, ETH is trading at $3,579, equivalent to roughly $111,500.

Staking Preferences

While staking pools and liquid staking services like Lido remain popular among Ethereum stakers due to their accessibility with smaller amounts of ETH, concerns have been raised about their dominance and potential cartelization.

Lido, for instance, currently holds $34 billion worth of ETH, representing approximately 30% of the total supply. The price of Lido DAO, the largest liquid Ethereum staking provider, experienced a momentary surge of 6%, when Fidelity amended Spot ETH ETF to Include ETH Staking recently with the United States Securities and Exchange Commission (SEC).