Vitalik Buterin calls staking centralization 'one of the biggest risks' to Ethereum in 'Scourge' outline

Ethereum co-founder Vitalik Buterin continued his recent series of blog posts addressing Ethereum's future in a new post which 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 addressed Ethereum's "Merge" and "Surge" upgrades in previous blog posts, discussing possible improvements to Ethereum's staking system and setting an ambitious goal of 100,000 transactions per second across Layer 1 and Layer 2 networks on the blockchain. 

Buterin's latest post addresses the risk of proof-of-stake centralization due to economic pressures, calling the prospect "one of the biggest risks to the Ethereum L1," and outlines several approaches to mitigating the risk as part of the network's planned "Scourge" upgrade. According to Buterin, the two key places where the risk manifests are in block construction and staking capital provision. 

Block construction

In his blog post's first section, Buterin addresses the problem of MEV, or maximal extractable value , noting that currently, "two actors are choosing the contents of roughly 88% of Ethereum blocks," increasing the risk of censorship that could delay a transaction by minutes, potentially causing issues with time-sensitive liquidations or token swaps. 

One "crucial" element of the solution may be an encrypted mempool that makes it harder for block proposers to censor specific transactions, according to Buterin, who acknowledges in his post that continuing work is needed to come up with a design that is "both robust and reasonably simple, and plausibly ready for inclusion." 

Buterin identifies a "core conundrum" with different approaches to combatting MEV: "Any meaningful authority that remains in the hands of stakers, is authority that could end up being 'MEV-relevant'," Buterin states, meaning a tradeoff exists between the stakers' ability to select transactions and the amount of value stakers could plausibly extract from the blockchain. 

Buterin also outlines two approaches with different tradeoffs: using inclusion lists, meaning stakers propose a list of transactions that builders must include in the next block, and using multiple concurrent proposers, meaning the block production process is split between many actors. 

"A valid conservative strategy would be a 'wait-and-see' approach where we first implement a solution where stakers' authority is limited and most of the authority is auctioned off, and then slowly increase stakers' authority over time as we learn more about the MEV market operation on the live network," Buterin concludes. 

Staking capital provision

Buterin notes that 30% of Ethereum's supply is currently being staked, which he calls "far more than enough to protect Ethereum from 51% attacks." However, if that metric reaches closer to 100%, Buterin claims several risks may arise, including a weakening of the effect of slashing, needless issuance to the tune of an extra one million ether per year, and the potential for a single liquid staking token to take over the "money" network effects from Ethereum itself. 

Buterin outlines two main approaches to combatting the issue: capping the amount of ether a user can stake and implementing two-tier staking, where staked ether would be divided into an slashable and unslashable stake. "The main remaining task is to either agree to do nothing, and accept the risks of almost all ETH being inside LSTs, or finalize and agree on the details and parameters of one of the...proposals," Buterin writes. 

Buterin also outlines application-level solutions to the above issues, from developing and promoting specialized staking hardware solutions, rewarding solo stakers through airdrops, and reducing MEV through sophisticated application design. "Ethereum is not just an L1, it is an ecosystem," Buterin wrote.