Key Points
Vitalik Buterin, co-founder of Ethereum, has put forward a proposal aimed at improving the decentralization of Ethereum.
The proposal involves penalizing correlated failures among validators.
Buterin shared his ideas on the Ethereum Research forum on March 27, discussing the need to support decentralized staking through more anti-correlation incentives.
He proposed that if several validators, controlled by the same entity, fail simultaneously, they should face a higher penalty than if they failed independently.
Understanding the Proposal
Buterin’s theory is based on the idea that if a single large actor makes a mistake, it is more likely to be replicated across all the identities they control.
He noted that validators within the same cluster, such as a staking pool, are more likely to experience correlated failures, likely due to shared infrastructure.
The proposal recommends imposing penalties on validators in proportion to the deviation from the average failure rate.
If many validators fail at the same time, the penalty for each failure would be increased.
Simulations suggest that this approach could reduce the advantage of large Ethereum stakers over smaller ones.
This is because large entities are more likely to cause spikes in the failure rate due to correlated failures.
The potential benefits of the proposal include incentivizing decentralization by having a separate infrastructure for each validator.
It could also make solo staking more economically competitive compared to staking pools.
Buterin also suggested other options, such as different penalty schemes to minimize the average big validator’s advantage over small validators.
He also suggested studying the impact on geographic and client decentralization.
No mention was made of the possibility of reducing the solo staking amount from 32 Ether (ETH), which currently equates to roughly $111,500.
Staking pools and liquid staking services like Lido remain popular because they allow stakers to participate with a smaller amount of ETH.
Lido currently has $34 billion worth of ETH staked, equating to around 30% of the total supply.
Previous warnings have been issued by Ethereum advocates and developers over Lido’s dominance and the potential for “cartelization,” where outsized profits compared to non-pooled capital can be extracted.