Vitalik Buterin suggests a variety of methods to address the dangers associated with Ethereum’s proof-of-stake mechanism.
Vitalik Buterin, the co-founder of Ethereum, has identified potential dangers in the proof-of-stake mechanism of the L1 network and has suggested solutions to address them.
In an October 20 blog post, Buterin emphasized the primary objectives of “The Scourge,” a critical phase in Ethereum’s roadmap. Buterin’s objective is to reduce the risks associated with Ethereum’s staking layer and to alleviate the negative consequences of excessive value extraction from users.
According to Vitalik Buterin, centralization was one of the most significant obstacles the Ethereum network encountered as a result of economic pressure. He contended that this pressure would inevitably result in large stakeholder dominance and the departure of small stakeholders to join large pools in order to capture the benefits of economies of scale.
Vitalik wrote, “This results in an increased risk of 51% attacks, transaction censorship, and other crises.” “Value extraction risks are present in addition to the centralization risk, as a small group may capture value that would otherwise be accessible to Ethereum’s users.”
Ethereum co-founder identified two critical areas in which the emphasized risks were present: stake capital provision and block construction.
However, according to Buterin, large actors have the potential to generate more revenue than small actors by utilizing sophisticated algorithms to derive the Maximum Extractable Value (MEV) per block. This could potentially create additional incentives for centralization.
Buterin also said that “very big” players can avoid the problems that come with having cash locked up by giving it to other market participants as a liquidity staking token (LST), which shifts the risks to smaller players.
The Ethereum co-founder is of the opinion that these risks can be mitigated through substantial research on proof-of-stake economics. This includes the implementation of two-tiered staking models and the reduction of issuance to limit the amount of ETH that is staked.
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