Ethereum’s co-founder proposes new plan to boost decentralization in crypto staking

Ethereum co-founder Vitalik Buterin has launched a proposal to enhance the decentralization and fairness of the Ethereum network’s staking process, marking a significant stride in refining the protocol.

Dubbed the “anti-correlation incentive” program, this initiative seeks to penalize what is considered routine mistakes by validators, such as failing to complete an attestation—a process vital for the network’s security and efficiency.

The rationale behind Buterin’s proposal stems from an observation within decentralized systems: errors made by one participant are likely to be mirrored across other nodes or validators controlled by the same entity.

The anti-correlation incentive is designed to discourage such uniformity in errors, thereby fostering a more distributed and robust network structure.

Central to Buterin’s argument is the concern that without such measures, attempts to promote decentralization could inadvertently encourage only a veneer of compliance. Validators might simply appear to diversify without genuinely distributing control or resources, thus maintaining the status quo under the guise of decentralization.

Ethereum already employs penalty mechanisms for serious infractions, known as slashing, but these have historically been reserved for egregious or malicious behavior. The proposed anti-correlation incentive program, however, would integrate penalties into the everyday operations of the network.

The approach aims to address particularly the large stakers operating numerous validators from a singular location or device, which could lead to widespread, correlated failures within the network.

Buterin suggests that the new program would compel these large entities to genuinely diversify their operations, thereby reducing the risk of simultaneous failures while still enabling them to leverage economies of scale. The idea is to balance the scale advantages of large validators with the need for a decentralized and resilient network.

To ensure fairness, the proposal is tailored to impact primarily large validators, with safeguards in place to prevent undue hardship on smaller participants. It ensures that the punitive aspects of the program are directed where they can encourage real change, without disproportionately affecting those with fewer resources.

Speaking at ETHTaipei 2024, which took place from March 21 to 24, Buterin earlier talked about “rainbow staking.” The concept encourages diversity in service providers, attempting to address Ethereum’s centralization issues further.

His concern over centralization was highlighted by the dominance of platforms like Lido Finance, which, at one point, controlled over 70% of Ethereum-staked assets despite these being distributed among numerous validators.