Key Points
Vitalik Buterin, co-founder of Ethereum (ETH), has recently put forward a proposal.
This proposal, referred to as “The Scourge”, outlines his vision for Ethereum’s future.
Addressing Centralization and Dominance
“The Scourge” is intended to tackle two primary issues.
These are the increasing centralization in Ethereum’s block creation and the growing dominance of liquid staking providers.
Buterin’s plan involves a two-tier staking system.
It also proposes capping penalties for stakers at 12.5%.
Moreover, it suggests giving proposers more control over transaction selection.
The proposal was made following warnings from Toni Wahrstätter, an Ethereum researcher.
Wahrstätter had expressed concerns about the centralization of block production prior to Buterin’s announcement.
He noted that two builders, Titan Builder and Beaverbuild, were responsible for nearly 88.7% of Ethereum’s blocks in the previous fortnight.
This significant centralization is a result of the expansion of private order flows.
Private order flows occur when certain decentralized applications sell exclusive access to their transactions.
This reduces competition and threatens decentralization by narrowing the transaction pool.
Wahrstätter points out that while Ethereum is making strides in resisting censorship, this centralization could lead to more serious problems.
In a situation with little competition, builders might be tempted to take on more risks, which could destabilize the network.
Wahrstätter believes these risks could be mitigated with improved public access to order flow, which would foster greater competition.
Industry Reactions
The industry has had mixed reactions to Buterin’s proposed solution.
Mario Raufal, host of the Crypto Roundtable, has shown support for the proposal, particularly the two-tier staking approach.
Raufal thinks this change could significantly disrupt the dominance of large players in block production and transaction selection, promoting a more decentralized environment.
However, not all share this sentiment.
Dr. Jasper, a community advocate for Rocket Pool, expressed skepticism, especially about Buterin’s idea to reduce terminal inflation.
Jasper fears this could result in unfavorable outcomes for solo stakers.
He points out that large liquid staking token providers like Lido and Coinbase, with their low operational costs, would continue to prosper even with yields as low as 0.7%.
On the other hand, solo stakers, who usually have higher fixed costs, would find it challenging to stay profitable with an annual percentage return of less than 0.8%.
Jasper predicts that as staking rewards decrease, solo stakers would be the first to exit.
Meanwhile, liquid staking token providers would continue to be profitable even as yields approach fractions of a percent.