- Vitalik Buterin identified block production and staking as significant risks of centralization.
- The team was investigating potential strategies to mitigate these risks.
Vitalik Buterin, the co-founder of Ethereum [ETH], has examined the centralization risks facing the network along with possible solutions that the team is considering.
Buterin pointed out that both block production and staking pose critical risks of centralization. To illustrate the urgency, two entities (Beaver and Titan) were responsible for almost 90% of ETH blocks in October.
What issues could arise from such a high degree of centralization?
Source: Buterin
Buterin further noted that the dominance of large stakers could increase the risks of network attacks and censorship. He mentioned,
“This (dominance of large stakers) results in a higher risk of 51% attacks, transaction censorship, and other potential crises. Beyond the risks of centralization, there are also concerns regarding value extraction: a small group monopolizing value that should benefit Ethereum’s users.”
Potential Solutions
Since last year, these risks have intensified due to a rise in the use of specialized algorithms (MEV, maximum extraction value) by block proposers seeking to maximize their income.
“Larger actors have the capacity to deploy more advanced algorithms (“MEV extraction”) to create blocks, enabling them to achieve greater revenue per block.”
To tackle the block production issue, Buterin proposed the inclusion lists method as a viable solution, where both proposers and builders share responsibilities.
“The primary solution is to decompose the block production task further: we return the task of selecting transactions to the proposer (i.e., a staker), while the builder can only arrange the order and add some transactions of their own. This is the goal of inclusion lists.”
The team is assessing various intricacies of inclusion lists, weighing different trade-offs to finalize a singular approach.
Regarding staking risk, 34 million out of a circulating supply of 120 million is currently staked, representing nearly 30% of the total ETH supply.
According to Buterin, the ongoing growth in staking could lead to a scenario where one liquid staking token (LST) becomes too dominant, thereby limiting liquidity.
To address this, the team considered minimizing staking rewards and placing caps on the amount of ETH that could be staked.
In summary, Buterin emphasized the importance of preventing value extraction from users in favor of reducing centralized control, thereby limiting the risk of increased centralization within the network.
Shortly after the announcement, ETH sentiment experienced a positive shift, indicating that market participants were optimistic about the altcoin’s future price trajectory.
Source: Santiment
While it remains unclear which solutions the team will finalize to tackle the identified challenges, their efforts may enhance ETH’s value over time.
At the time of writing, ETH was priced at $2.6K, just a distance away from its $2.9K bullish target.
Source: ETH/USD, TradingView
