To mitigate risks, the co-founder of Ethereum, Vitalik Buterin, proposed a framework to eliminate the problem of correlated failures among validators to improve decentralization. A recent quantitative analysis of Vitalik’s proposal by Ethereum Foundation’s analyst, Toni Wahrstatter, has pointed out the economies of scale to maintain centralization in blockchain networks.
Buterin’s Proposal Seeks to Reduce Centralization Risks
His proposal implies penalties for the validators controlled by the same entity for correlated failures to incentivize decentralization. Staking pools, such as Lido, have already been blamed for their majority. They currently hold around $34 billion worth of
Ethereum$3,807.16
But at the same time, staking pools imply higher risks of correlated failures since all participants use the same infrastructure. Buterin’s proposal suggests that validators within the same cluster have much higher chances of correlated drawbacks, probably related to the coordination of infrastructure.
Furthermore, the validators that are controlled by the same entity will be penalized more heavily regarding the “simultaneous failure”. This would make it unprofitable for large entities to control multiple validators making the system more decentralized. It will level the playing field for smaller validators and contribute to a more balanced network.
New Formula Targets Correlated Penalties in Ethereum Staking
The formula involves a moving average of missed attestations over a certain number of slots. If on a slot, the number of missed attestations is higher than the moving average, then the correlated penalty is applied. This concept aims to address the issues of the economy of scale where the large-scale staking operation benefits from the high connectivity and the infrastructure. However, they have higher chances of suffering from correlated drawbacks.
Moreover, solo staking will be relatively more economically attractive than staking pools due to the excessive penalties for corrupted entities. Despite the numerous benefits of the proposal, it may also have several potential drawbacks.
It is important to analyze how the penalties affect the geographical distribution and the dominance of a specific client to ensure that the scheme does not deteriorate. Still, it can be regarded as a good start to penalizing the advantage of large entities. In addition to all, it makes decentralized staking the critical choice for all participants. Therefore, it can be regarded as an important step towards the improvement of the network and the future of Ethereum.
