Ethereum Co-founder Vitalik Buterin on Mitigating Proof-of-Stake Centralization Risks

Ethereum co-founder Vitalik Buterin continued his recent series of blog posts addressing Ethereum's future in a new post that outlines possible approaches the blockchain's community can take to mitigate proof-of-stake centralization risks as part of the planned Scourge upgrade.

Buterin had previously discussed the Merge and Surge upgrades, highlighting potential improvements to Ethereum's staking system and setting an ambitious goal of 100,000 transactions per second across Layer 1 and Layer 2 networks.

Centralization Risks

In his latest post, Buterin emphasizes the risk of proof-of-stake centralization due to economic pressures, calling it "one of the biggest risks to Ethereum L1." He suggests several strategies to address this issue, particularly focusing on block construction and staking capital provision.

Block Construction

In the first section of the blog, Buterin tackles Maximal Extractable Value (MEV), noting that currently, two actors are choosing the contents of roughly 88% of Ethereum blocks. This concentration increases censorship risks, which could delay transactions significantly. A possible solution he proposes is an encrypted mempool, which would complicate block proposers’ ability to censor transactions.

He also highlights the tradeoff in maintaining authority among stakers while mitigating MEV extraction. Buterin suggests two approaches: using inclusion lists where stakers propose transactions for inclusion and employing multiple concurrent proposers to decentralize block production.

He concludes that a conservative strategy could involve initially limiting staker authority and gradually increasing it as the MEV market becomes better understood.

Staking Capital Provision

Buterin points out that 30% of Ethereum's supply is currently staked, which is ample protection against 51% attacks. However, he warns that if staking approaches 100%, significant risks might emerge, such as diminished slashing effects and excessive issuance of ether. He outlines two main strategies to tackle this: capping the ether staked by users and establishing a two-tier staking system to divide staked ether into slashable and unslashable categories.

Buterin mentions the necessity of either accepting the risks of nearly all ether being within Liquid Staking Tokens (LSTs) or finalizing details for one of the proposed solutions.

Additionally, he discusses application-level solutions, including developing specialized staking hardware, rewarding solo stakers through airdrops, and reducing MEV via advanced application design. Buterin concludes by emphasizing that Ethereum is not just an L1, but an ecosystem.