Ethereum’s Vitalik Buterin highlights centralization risks in major staking pools Lido and Rocket Pool, suggesting solutions for enhanced decentralization.

In recent news, Vitalik Buterin, the co-founder of Ethereum, has drawn attention to potential centralization issues lurking within prominent ETH staking pools, namely Lido and Rocket Pool. Both these staking pools stand out as the market’s giants, giving Ethereum enthusiasts a platform to earn rewards through staking without locking their assets in staking smart contracts.

Diving into the details, Lido offers its users a derivative token dubbed as “staked ETH” or stETH. This token acts as a representation of the staked value. In contrast, Rocket Pool operates by enabling its users to run a permissionless node, provided they deposit 8 ETH.

However, both platforms come with their own sets of challenges. Rocket Pool’s mechanism could pave the way for bad actors to launch a 51% attack on the network. Such an attack would burden users with most of the associated costs. On the other hand, Lido operates based on a decentralized autonomous organization (DAO) model. This model could set the stage for a potentially vulnerable governance system controlling a significant chunk of Ethereum’s validators, especially if one staking token gains dominance.

Mitigating Centralization Risks in Ethereum Staking

Acknowledging these risks doesn’t mean the industry stands still. Lido, for instance, has put in place protective measures against potential threats. But, as Buterin points out, relying solely on one protective layer might not suffice in the long run.

To tackle the looming risks of one staking provider growing too powerful and consequently posing a system threat to the blockchain, Buterin suggests a couple of solutions. Initially, he advises the community to spread their stakes across different pool operators, reducing the dominance of a single entity.

Furthermore, he emphasizes the importance of introducing protocol-level features that can minimize centralization effects in other aspects. One approach could be the “minimal viable enshrinement”. This strategy would not be hyper-focused but would address these centralization challenges efficiently. For instance, rather than setting up an entire liquid staking system, alterations to the staking penalty rules could make trustless liquid staking a more practical solution.

The post Vitalik Buterin Highlights Centralization Concerns On Staking Pools appeared first on Crypto Academy.

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Filed under: Bitcoin - @ October 2, 2023 10:20 pm