Vitalik Buterin Unveils “Scourge” Upgrade, Warns of Ethereum Staking Centralization Risks

Ethereum co-founder Vitalik Buterin outlines the risks of staking centralization in Ethereum as part of the upcoming “Scourge” upgrade, highlighting MEV and proposing solutions like encrypted mempools to mitigate risks.

In a recent series of blog posts, Ethereum co-founder Vitalik Buterin revealed a roadmap for Ethereum upcoming “Scourge” upgrade, focusing on the increasing risks of staking centralization in the Ethereum network. As Ethereum continues to evolve post-Merge and Surge, Buterin emphasizes the need to address potential threats to decentralization within the proof-of-stake consensus mechanism.

Centralization Risks in Ethereum Staking

Buterin highlighted that proof-of-stake centralization represents one of the biggest risks to Ethereum’s Layer 1 (L1). Specifically, Buterin pointed to two key areas where this risk manifests: staking capital provision and block construction. He warned that if left unchecked, centralization could undermine the core principles of the Ethereum network, which relies on broad distribution and decentralized governance.

The Problem of MEV and Block Censorship

Buterin also addressed the issue of Maximal Extractable Value (MEV), noting that “two actors are choosing the contents of roughly 88% of Ethereum blocks,” which poses serious risks. MEV refers to the profit that validators can extract by reordering, including, or excluding transactions in a block. This practice could lead to transaction censorship, delaying time-sensitive operations like token swaps or liquidations.

To mitigate these risks, Buterin proposed the implementation of an encrypted mempool. This would make it harder for block proposers to censor specific transactions, thereby preserving network neutrality and ensuring fairness in transaction processing.

“Further development is necessary to create a design that is both robust and reasonably simple, and plausibly ready for implementation,” Buterin explained. He suggested a “wait-and-see” approach, where a more conservative solution would first limit stakers’ authority and auction off most of the block construction authority. Over time, as the MEV market matures, stakers’ authority could gradually increase.

Ethereum Staking Capital Provision Risks

Buterin also raised concerns about staking capital provision. Currently, 30% of Ethereum’s supply is staked, which Buterin described as “far more than enough to protect Ethereum from 51% attacks.” However, he cautioned that if staking reaches 100% of the ETH supply, it could weaken slashing penalties and result in the unnecessary issuance of an extra 1 million ETH per year.

He warned that this situation could lead to a single liquid staking token (LST) dominating the network, effectively undermining Ethereum’s decentralized architecture. To combat this, Buterin proposed two key strategies: introducing a cap on the amount of ether that any single entity can stake, and implementing a two-tier staking system. In this system, staked ETH would be divided into slashable and unslashable portions, thus reducing the risks associated with large-scale staking.

Buterin further elaborated on this idea, writing:

“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.”

Additional Proposals for Staking Decentralization

In addition to these core strategies, Buterin offered several application-level solutions aimed at promoting decentralization. He suggested the development of specialized staking hardware solutions, which would empower solo stakers and reduce reliance on centralized staking platforms. Buterin also proposed incentivizing solo stakers through airdrops while promoting sophisticated application design to further reduce the impact of MEV on the Ethereum network.

The Scourge upgrade is seen as a vital step in Ethereum’s long-term vision to enhance its proof-of-stake security, decentralization, and transaction processing fairness. As Ethereum progresses, Buterin’s insights offer a clear roadmap for maintaining the network’s foundational principles amid growing centralization risks.

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