{"id":17929,"date":"2024-10-21T12:53:49","date_gmt":"2024-10-21T09:53:49","guid":{"rendered":"https:\/\/forklog.com\/en\/vitalik-buterin-proposes-solutions-for-ethereum-staking-economy-challenges\/"},"modified":"2024-10-21T12:53:49","modified_gmt":"2024-10-21T09:53:49","slug":"vitalik-buterin-proposes-solutions-for-ethereum-staking-economy-challenges","status":"publish","type":"post","link":"https:\/\/u1f987.com\/en\/vitalik-buterin-proposes-solutions-for-ethereum-staking-economy-challenges\/","title":{"rendered":"Vitalik Buterin Proposes Solutions for Ethereum Staking Economy Challenges"},"content":{"rendered":"<p>Ethereum co-founder Vitalik Buterin, in the third part of his essay on the &#8220;potential future&#8221; of the network, examined the risks of centralization in the Proof-of-Stake mechanism due to economic pressures and proposed solutions.<\/p>\n<blockquote class=\"twitter-tweet\" data-lang=\"en\">\n<p lang=\"en\" dir=\"ltr\">Possible futures of the Ethereum protocol, part 3: The Scourge<a href=\"https:\/\/t.co\/mtzH1ZxTak\">https:\/\/t.co\/mtzH1ZxTak<\/a><\/p>\n<p>(I tried my best to be fair to all sides of the debates here!)<\/p>\n<p>\u2014 vitalik.eth (@VitalikButerin) <a href=\"https:\/\/twitter.com\/VitalikButerin\/status\/1847811676164542857?ref_src=twsrc%5Etfw\">October 20, 2024<\/a><\/p><\/blockquote>\n<p> <script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>In his view, the existing economies of scale in Ethereum naturally lead to the dominance of large stakers. This increases the likelihood of a 51% attack, transaction censorship, and &#8220;other crises.&#8221; <\/p>\n<p>Moreover, through MEV, a small group can capture value that should belong to all users, Buterin noted.<\/p>\n<p>There are two areas of risk concentration:<\/p>\n<ul class=\"wp-block-list\">\n<li>the block-building process;<\/li>\n<li>the provision of capital for staking.<\/li>\n<\/ul>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cLarge participants can afford to run more sophisticated generation algorithms, increasing their income. They also handle the inconveniences of locked funds more efficiently by releasing them as <span data-descr=\"liquid staking token\" class=\"old_tooltip\">LST<\/span>,\u201d the programmer emphasized.<\/p>\n<\/blockquote>\n<h2 class=\"wp-block-heading\">Improving the Block &#8220;Conveyor&#8221;<\/h2>\n<p>Most Ethereum blocks today are created through off-protocol proposer-builder separation using the MEVBoost solution. Various variations of this process maintain a decentralized set of validators, but concentration among &#8220;specialized participants&#8221; is observed, Buterin pointed out.<\/p>\n<p>Since early October, two major entities have determined the content for approximately 88% of blocks, he noted.<\/p>\n<figure class=\"wp-block-image size-full\"><img decoding=\"async\" src=\"https:\/\/u1f987.com\/wp-content\/uploads\/Bez-nazvaniya-53.webp\" alt=\"Bez-nazvaniya-53\" class=\"wp-image-243551\"\/><figcaption class=\"wp-element-caption\">Data: Buterin&#8217;s blog.<\/figcaption><\/figure>\n<p>In his opinion, this does not pose risks of a 51% attack or transaction censorship (100% control is needed). However, theoretically, a user&#8217;s operation can be delayed by two to five minutes, which in some cases (such as DeFi liquidations) allows for market manipulation.<\/p>\n<p>Among other negative consequences of block creators&#8217; strategies to maximize income, Buterin listed: <\/p>\n<ul class=\"wp-block-list\">\n<li>user losses on token swaps due to &#8220;sandwich attacks&#8221;;<\/li>\n<li>network congestion with such operations and increased gas prices for everyone.<\/li>\n<\/ul>\n<p>The Ethereum co-founder sees the solution in further segregation of block production tasks. This is ensured by the existing concept of &#8220;inclusion lists&#8221; with various variations like auction mechanisms or parallel proposers.<\/p>\n<p>Encrypted mempools, where the block builder does not see the transaction content until later, could be an addition.<\/p>\n<p>Buterin aims to transfer more authority to stakers and further decentralize their activities.<\/p>\n<h2 class=\"wp-block-heading\">Fixing the Staking Economy<\/h2>\n<p>Currently, about 30% of Ethereum&#8217;s market supply is locked. Buterin believes that further growth of this share to maximum levels poses several risks, including:<\/p>\n<ul class=\"wp-block-list\">\n<li>turning staking from a process of earning additional income into an obligation for all cryptocurrency holders;<\/li>\n<li>weakening trust in the slashing mechanism \u2014 penalties for dishonest behavior;<\/li>\n<li>the flow of Ethereum&#8217;s &#8220;monetary&#8221; network effect into one LS protocol;<\/li>\n<li>additional issuance of approximately ~1 billion ETH per year, which will mostly go into liquid staking.<\/li>\n<\/ul>\n<p>The expert considers it possible to mitigate these problems by limiting penalties. For example, imposing them on \u215b of the locked funds. Another option is a two-tier staking scheme, where anyone can participate without risking sanctions.<\/p>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cThe main counterargument here is that we still need to provide the &#8220;risk-free level&#8221; with some useful role and a certain level of risk,\u201d Buterin pointed out the contradiction.<\/p>\n<\/blockquote>\n<p>He identified another important topic in the staking economy as the &#8220;capture&#8221; of MEV. Currently, the income from operations is received by block proposer delegates. Buterin emphasized that the existence of this revenue stream is &#8220;extremely inconvenient&#8221; for the protocol because:<\/p>\n<ul class=\"wp-block-list\">\n<li>it has an unstable nature, difficult to assess (on average, a staker can receive it once every four months) and provokes centralization (joining large pools);<\/li>\n<li>it shifts the balance of incentives in favor of block proposals over confirmations;<\/li>\n<li>it complicates the management of staking yield.<\/li>\n<\/ul>\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p>\u201cWe can solve these problems by finding a way to make MEV income understandable for the protocol and capture it,\u201d the Ethereum co-founder expressed confidence.<\/p>\n<\/blockquote>\n<p>This closely intersects with the support of solo staking, he noted. Currently, the cheapest cloud solution for running a node costs about $60 per month. With a minimum lock of 32 ETH, this reduces annual yield by approximately 0.85%.<\/p>\n<p>Buterin wrote about ways to encourage individual staking, including drastically reducing the deposit size and optimizing equipment requirements, in the first part of his essay.<\/p>\n<p>At the Shanghai Blockchain Week 2024, he identified the lack of a unified ecosystem as Ethereum&#8217;s most pressing issue.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Ethereum co-founder Vitalik Buterin, in the third part of his essay on the &#8220;potential future&#8221; of the network, examined the risks of centralization in the Proof-of-Stake mechanism due to economic pressures and proposed solutions. Possible futures of the Ethereum protocol, part 3: The Scourgehttps:\/\/t.co\/mtzH1ZxTak (I tried my best to be fair to all sides of [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":17928,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"","news_style_id":"","cryptorium_level":"","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[3],"tags":[1289,46,1150,200],"class_list":["post-17929","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-and-analysis","tag-cryptocurrency-staking","tag-ethereum","tag-news-plus","tag-vitalik-buterin"],"aioseo_notices":[],"amp_enabled":true,"views":"17","promo_type":"","layout_type":"","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/17929","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/comments?post=17929"}],"version-history":[{"count":0,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/posts\/17929\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media\/17928"}],"wp:attachment":[{"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/media?parent=17929"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/categories?post=17929"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/u1f987.com\/en\/wp-json\/wp\/v2\/tags?post=17929"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}