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Ethereum Co-Founder Vitalik Buterin Proposes Penalty Scheme to Enhance Decentralization

Ethereum’s co-founder, Vitalik Buterin, has introduced an innovative approach aimed at enhancing the platform’s decentralization by implementing penalties for simultaneous failures among validators.

This proposal, shared on the Ethereum Research forum on March 27, aims to create incentives for decentralized staking by introducing “more anti-correlation incentives.”

Buterin’s proposal focuses on imposing harsher penalties on validators that are under the control of a single entity and fail simultaneously, compared to individual failures.

“The theory is that if you are a single large actor, any mistakes that you make would be more likely to be replicated across all ‘identities’ that you control,” Buterin explained, highlighting the risk of correlated failures especially within staking pools due to common infrastructure.

The core of Buterin’s suggestion is to penalize validators based on how their failure rates deviate from the norm.

In scenarios where a significant number of validators fail at the same time, each validator’s penalty would increase, aiming to discourage large stakers from causing widespread disruptions due to correlated failures.

This approach, supported by simulations, could potentially level the playing field between large and small Ethereum stakers.

Buterin’s proposal extends beyond just penalties.

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It advocates for measures that encourage the use of separate infrastructures for each validator and promote the economic viability of solo staking in comparison to joining staking pools.

Additionally, Buterin has floated the idea of exploring alternative penalty schemes and the impact of these measures on both geographic and client decentralization within the Ethereum network.

The discussion around staking decentralization also touches upon the dominance of staking pools and liquid staking services, such as Lido, which currently holds a significant portion of the total ETH supply staked.

This dominance raises concerns about potential centralization and the disproportionate advantages that large pools could have over individual stakers.

Despite the suggestions, Buterin did not address the possibility of lowering the solo staking threshold of 32 Ether, which is a significant financial commitment for individual participants.

This proposal comes amid ongoing discussions within the Ethereum community about the risks of centralization and the need for mechanisms that ensure a more equitable and decentralized network, especially in light of the significant amounts of ETH managed by services like Lido and the potential for “cartelization.”

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