Ethereum Co-Founder Vitalik Buterin Explores Ethereum Staking Changes – What's Going On?

Ethereum (ETH) co-founder Vitalik Buterin has recently shared his thoughts on potential changes to Ethereum's staking system.

In a recent blog post, Buterin discussed various protocols, including ERC-4337, ZK-EVMs, private mempools, code precompiles, and liquid staking, and explored the trade-offs associated with incorporating them into Ethereum's code.

The Ethereum mastermind said the goal behind the article was to "start to build toward a framework for better identifying possible targets where enshrining certain features in the protocol might be worth considering."

Buterin expressed a stronger inclination towards incorporating certain protocols into Ethereum's code, such as ERC-4337, while being more cautious about others, like private mempools. 

ERC-4337 is a token standard co-authored by Buterin, Kristof Gazso, Dror Tirosh, Tjaden Hess, Yoav Weiss and Shahaf Nacson that introduces account abstraction without changes to the underlying Ethereum protocol.

Meanwhile, private mempols, or "encrypted mempools," keep users' transactions encrypted until the moment they get irreversibly accepted into a block.

He acknowledged that each of these protocols present complex trade-offs that will continue to evolve over time.

Buterin Expresses Concern About Staking Concentration

One specific concern that Buterin mentioned was the concentration of power among Ethereum's liquid staking providers. 

Lido, a prominent liquid staking pool, currently controls over 32% of the staked ether on Ethereum, with holdings distributed across different validators. 

Alongside Rocket Pool, Lido is a significant player in the ecosystem, but Buterin highlighted the need for more robust safety mechanisms.

Buterin proposed exploring additional solutions to enhance the safety and decentralization of liquid staking. 

Rather than relying solely on moralistic pressure to encourage stakeholders to diversify their choice of staking providers, he suggested tweaking the Ethereum protocol itself. 

This could involve refining RocketPool's existing approach or granting enhanced governance rights to a randomly sampled committee of small stakeholders. These measures could contribute to a more decentralized and resilient Ethereum ecosystem.

As reported, several prominent liquid staking providers have implemented or are in the process of implementing a self-limit rule in an effort to maintain the decentralized nature of Ethereum.

The rule ensures that these providers will not own more than 22% of the Ethereum staking market, which could help address concerns over the growing centralization of Ethereum staking.

Rocket Pool, StakeWise, Stader Labs, Diva Staking, and Puffer Finance are some of the staking platforms that have already committed to the self-limit rule.

However, Lido Finance has decided not to commit to the self-limit rule.

Back in June, the project put forward a proposal to impose a limit on Lido’s maximum stake.

Less than one half of one percent of the votes cast were in favor of the self-limit rule, while those holding more than 99% of Lido’s governance tokens, LDO, voted for the protocol to not hold back on its growth.

Coinbase, the second-largest staking provider, holds only an 8.7% market share, according to data from Dune Analytics.