Vitalik Buterin Addresses Risks of Staking and Liquid Staking Tokens, Points to Centralization Risk
During his recent address at ETHTaipei, Ethereum founder Vitalik Buterin shed light on a new strategy called ‘Rainbow Staking’ aimed at mitigating the risks of centralization associated with staking on the Ethereum blockchain. This initiative seeks to encourage a more diverse and decentralized participation of validators on the network.
Risks of Centralization Associated with Ethereum Staking
Vitalik Buterin emphasized that staking, particularly liquid staking tokens, poses a centralization risk for the Ethereum blockchain. The lack of ‘solo stakers’ stems from various obstacles, including technical challenges in running one’s own node and financial constraints such as the requirement to deposit 32 ETH to become a validator. This situation has led to a market dominance by liquid staking solutions, with Lido being one of the most prominent with a 61.36% dominance.
The Concept of Rainbow Staking
The ‘Rainbow Staking’ proposed by Buterin is divided into two distinct categories: ‘heavy staking’ and ‘light staking’. The former, subject to penalties and signatory to each interval, contrasts with the latter, which is not subject to penalties and is selected through a lottery system to sign intervals.
This division aims to enhance security by requiring approval from two types of stakers to finalize a block. This approach seeks to combine the security advantages of each method while preventing the dominance of a single liquid staking token that could overshadow ETH as the primary currency on the Ethereum network.
The framework of ‘Rainbow Staking’ seeks to economically value the role of the ‘solo staker’ and enable healthy competition on the network. However, Buterin acknowledges that transitioning to this model still requires research and development. He also raises philosophical questions, particularly on how to involve passive ETH holders who wish to earn rewards while contributing to the security of the Ethereum network.
