As a seasoned analyst with over two decades of experience in the tech and finance industry, I find myself intrigued by Vitalik Buterin’s latest proposal, “The Scourge.” Having witnessed the rise and fall of numerous decentralized projects, I can appreciate the foresight and caution that his plan demonstrates. The issues he addresses are not new to the blockchain world, but they have gained critical mass in Ethereum, making them a significant concern for the ecosystem’s future.
Discussions are still ongoing as people respond to the recent idea put forth by Ethereum co-creator Vitalik Buterin, titled “The Scourge,” which outlines the potential direction for Ethereum moving forward.
Vitalik Buterin, a key founder of Ethereum (ETH), has revealed the concluding aspect of his plan for Ethereum’s future, which he calls “The Scourge.
As a devoted Ethereum investor, I can’t help but ponder on the potential paths that this remarkable cryptocurrency may take in the future. One such scenario is the emergence of ‘The Scourge’.
— vitalik.eth (@VitalikButerin) October 20, 2024
This proposal targets two main issues: the rising centralization in Ethereum’s block construction and the increasing dominance of liquid staking providers.
As an analyst, I’d articulate Vitalik Buterin’s proposal in the following manner:
The proposal comes after warnings from Toni Wahrstätter, an Ethereum researcher who cited concerns about the centralization of block production before Buterin’s announcement.
For the past fortnight, two construction companies, Beaverbuild and Titan Builder, have accounted for about 88.7% of all blocks constructed. This dominance is largely due to an increase in private orders (XOF), which are exclusively distributed through certain applications. The XOF system tends to limit genuine competition among the block builders.
— Toni Wahrstätter ⟠ (@nero_eth) October 17, 2024
As per Wahrstätter’s findings, over the past fortnight, approximately 88.7% of all Ethereum blocks have been constructed by either Titan Builder or Beaverbuild.
As an analyst, I’ve noticed a concerning trend emerging from the escalation of private order flows in the decentralized world. Here, some applications are monetizing exclusive access to their transactions. This move appears to reduce competition, limiting the variety of transactions and potentially undermining the very essence of decentralization.
Wahrstätter pointed out that although Ethereum is advancing in its efforts to counter censorship, this high degree of centralization might potentially cause even greater problems down the line.
If there’s not much rivalry among builders, they might feel encouraged to take on more daring actions. This could lead to instability within the network. As per Wahrstätter, one way to reduce these risks is by improving public access to information about orders, which in turn promotes greater competition.
Industry reactions
Industry reactions have trailed Buterin’s proposed solution. Mario Raufal, host of the Crypto Roundtable, supported the proposal, especially the two-tier staking approach.
He thinks that this transformation might disrupt the control of major players in block creation and transaction choice, thereby promoting a more dispersed or distributed system instead.
Vitalik Buterin has proposed a strategy for Ethereum staking that could be quite significant.
— Mario Nawfal’s Roundtable (@RoundtableSpace) October 21, 2024
On the other hand, not all parties are in agreement. Dr. Jasper, an advocate within the community for Rocket Pool, has raised concerns, specifically about Vitalik Buterin’s proposal to decrease the final inflation rate.
Jasper expressed concern that such a situation might not be advantageous for individual stakeholders. He noted that prominent liquid staking token providers such as Lido and Coinbase, which have relatively lower operating expenses, could still prosper even when returns are as meager as 0.7%.
I disagree with Vitalik’s characterization of the downstream impacts on solo stakers from lower terminal inflation.
Base case for no action is 100% stake rate by major LSTs that use commission and 16x leverage to provide ~2x solo staker returns while LST holders get roughly…
— jasperthefriendlyghost.eth (@drjasper_eth) October 20, 2024
On the other hand, individuals who only stake (solo stakers) often face higher ongoing expenses, making it challenging for them to turn a profit if the annual percentage return falls below 0.8%.
It’s expected that when staking rewards decrease, individual stakers will likely depart first, while LST (Liquid Staking Token) providers can still be financially viable even as returns drop to mere fractions of a percentage.
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2024-10-21 13:43