Vitalik Buterin, the co-founder of Ethereum, has put forward a proposal to promote better decentralization of the platform by penalizing correlated failures among validators. Buterin shared his ideas on March 27th in the Ethereum Research forum, suggesting the use of “anti-correlation incentives” to support decentralized staking.
According to Buterin, if multiple validators controlled by the same entity fail simultaneously, they should face a higher penalty compared to individual failures. He explained that when a single large actor makes a mistake, it is more likely to be replicated across all the “identities” they control.
Buterin noticed that validators within the same cluster, such as a staking pool, often experience correlated failures due to shared infrastructure. To address this, his proposal recommends penalizing validators based on the deviation from the average failure rate. In instances where many validators fail at the same time, the penalty for each failure would be higher.
Simulations suggest that this approach could reduce the advantage that large Ethereum stakers have over smaller ones, as larger entities are more likely to cause spikes in the failure rate due to correlated failures. The proposal aims to incentivize decentralization by encouraging separate infrastructures for each validator and making solo staking more economically competitive compared to staking pools.
Buterin also suggested other options, such as implementing different penalty schemes to minimize the advantage of big validators over smaller ones and assessing the impact on geographic and client decentralization. However, he did not mention the possibility of reducing the solo staking amount from 32 Ether (ETH), which is currently valued at approximately $111,500.
Staking pools and liquid staking services like Lido have gained popularity as they allow stakers to participate with smaller amounts of ETH. Currently, Lido holds around $34 billion worth of staked ETH, which accounts for approximately 30% of the total supply.
However, Ethereum advocates and developers have expressed concerns about Lido’s dominance and the potential for “cartelization,” where pooled capital can extract outsized profits compared to non-pooled capital.
In related news, the magazine Wolf Of All Streets has raised concerns about a hypothetical scenario where Bitcoin reaches $1 million, suggesting it could lead to a “Hall of Flame” situation.