Vitalik Buterin, co-founder of Ethereum (ETH), has recently delved into potential modifications to Ethereum’s staking mechanism.
In a recent article, Buterin examined several protocols such as ERC-4337, ZK-EVMs, private mempools, code precompiles, and liquid staking. He evaluated the pros and cons of integrating these into Ethereum’s foundational code.
Buterin, the key figure behind Ethereum, articulated that the primary intent of his post was to pave the way for “a structured approach to identify areas where integrating specific features at the protocol level could be deemed beneficial.”
Vitalik Buterin has shown a preference for integrating certain protocols, like ERC-4337, into Ethereum’s foundation, while expressing reservations about others, such as private mempools.
ERC-4337, a token standard which Buterin had a hand in crafting alongside Kristof Gazso, Dror Tirosh, Tjaden Hess, Yoav Weiss, and Shahaf Nacson, facilitates account abstraction without necessitating modifications to the core Ethereum protocol.
On the other hand, private mempools, also termed “encrypted mempools,” ensure that users’ transactions remain encrypted up until the point they are permanently incorporated into a block.
Buterin emphasized that each protocol comes with its own set of intricate pros and cons, a dynamic that will inevitably shift as the technology and landscape evolve.
Buterin Expresses Concern About Staking Concentration
Buterin raised specific apprehensions about the growing consolidation of influence among Ethereum’s liquid staking entities.
Notably, Lido, a leading liquid staking pool, presently governs more than 32% of Ethereum’s staked ether. Although these assets are distributed amongst various validators, the dominance of such entities, including Rocket Pool, in the ecosystem can’t be overlooked.
Highlighting these concerns, Buterin emphasized the urgency to implement stronger safeguards. He advocated for the exploration of innovative measures to bolster the security and decentralization inherent to liquid staking.
Instead of exclusively leaning on ethical imperatives to motivate stakeholders to broaden their selection of staking providers, Buterin proposed considering modifications to the core Ethereum protocol to address these challenges directly.
Buterin suggests that potential solutions might include fine-tuning the methodology currently employed by RocketPool or bestowing advanced governance rights to a randomly chosen group of smaller stakeholders. Both approaches aim to foster a more decentralized and robust Ethereum ecosystem.
As highlighted in recent reports, numerous leading liquid staking providers are either adopting or considering the introduction of a self-imposed cap, designed to uphold Ethereum’s decentralized ethos.
This self-imposed rule mandates that these providers should not dominate more than 22% of the Ethereum staking landscape, addressing prevalent concerns about potential centralization in Ethereum’s staking arena.
Rocket Pool, StakeWise, Stader Labs, Diva Staking, and Puffer Finance stand as examples of staking platforms that have already pledged allegiance to this self-limit rule.
Lido Finance has chosen a different path, opting not to adhere to the self-limit rule.
In June, the initiative presented a proposition to set a cap on Lido’s maximum stake. However, the majority sentiment leaned heavily against self-restriction. Of the votes cast, a mere fraction, less than 0.5%, backed the self-limit rule. In stark contrast, over 99% of those in possession of Lido’s governance tokens, LDO, expressed a preference for the platform to pursue unrestricted growth.
To put things in perspective, Coinbase, which is the second-largest staking provider, commands a market share of only 8.7%, as per data sourced from Dune Analytics.
