Vitalik Buterin’s Plan to Address Ethereum PoS Risks

Ethereum (ETH) co-founder Vitalik Buterin has continued his recent series of blog posts by addressing one of the most pressing concerns for Ethereum’s future: the risk of proof-of-stake (PoS) centralization. In his latest post, Buterin outlines potential strategies for mitigating these risks as part of Ethereum’s upcoming “Scourge” upgrade. Focusing on block construction and staking capital provision.

Risks of Proof-of-Stake Centralization

Buterin describes PoS centralization as “one of the biggest risks to the Ethereum L1” due to economic pressures that may result in a small group of participants gaining excessive control over the network. He outlines two key areas where these risks are most prevalent: block construction and the provision of staking capital.

Block Construction and MEV

One of the primary concerns for block construction is the role of maximal extractable value (MEV). Buterin explains that 88% of Ethereum blocks are currently constructed by just two actors. Increasing the potential for censorship and creating risks for time-sensitive transactions such as liquidations or token swaps. Buterin proposes that an encrypted mempool could be part of the solution. Making it harder for block proposers to censor specific transactions. However, he acknowledges that designing a robust and straightforward system is an ongoing challenge.

Buterin identifies a “core conundrum” in addressing MEV: any authority given to stakers could potentially increase their ability to extract value from the blockchain. This creates a tradeoff between staker control and limiting the potential for excessive value extraction.

He outlines two possible approaches:

1. Inclusion lists: Stakers propose a list of transactions that builders must include in the next block.
2. Multiple concurrent proposers: The block production process is divided among many participants.

Buterin suggests a cautious “wait-and-see” approach. Where authority is gradually given to stakers based on lessons learned from the live network.

Staking Capital Provision and Liquid Staking

Buterin notes that 30% of Ethereum’s supply is currently staked. Which he calls “more than enough to protect Ethereum from 51% attacks.” However, if the proportion of staked ether rises closer to 100%, he warns of several potential risks:

• Weakened slashing effects.
• Excessive issuance of ether, adding up to an extra 1 million ETH per year.
• A single liquid staking token (LST) gaining dominance over Ethereum’s network effects.

Buterin proposes two solutions:

1. Capping the amount of ether a user can stake.
2. Two-tier staking, where staked ether is divided into slashable and unslashable stakes.

He also outlines application-level solutions such as developing specialized staking hardware, rewarding solo stakers, and reducing MEV through application design.

Conclusion

Buterin’s blog post underscores Ethereum’s ongoing commitment to addressing the risks associated with PoS centralization as the network continues to evolve. His proposed solutions, from block construction adjustments to staking capital reforms, are aimed at ensuring that Ethereum remains decentralized, secure, and scalable as it grows. Buterin’s emphasis on gradual, carefully considered changes reflects Ethereum’s larger approach to its ongoing upgrades, including the upcoming Scourge phase.