Vitalik's Vision: A Simplified Breakdown of Ethereum's Future and The Scourge

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Vitalik is firing on all cylinders and we can barely keep up with our summaries. Here’s the links to all his originals on this series and our summaries so far:

Possible futures of the Ethereum protocol, part 2: The Merge + (The Edge Summary)

Possible futures of the Ethereum protocol, part 2: The Surge + (The Edge Summary)

In his latest post, Vitalik highlights the growing risks of centralization in Ethereum’s proof-of-stake (PoS) system, focusing on two key areas: block construction and staking capital provision. As Ethereum evolves, there’s a concern that large stakers may dominate the network, benefiting from economies of scale in ways that could threaten decentralization, leading to potential 51% attacks, transaction censorship, and value extraction that harms users.

We’ve summarized the main ideas of Vitalik’s post below:

One key risk comes from Maximal Extractable Value (MEV), where larger stakers with more sophisticated algorithms can extract more revenue by selecting and ordering transactions in blocks. This leads to higher centralization as only larger actors can afford the necessary infrastructure for MEV extraction. Additionally, liquid staking tokens (LSTs) allow large stakers to mitigate the drawbacks of locking up their capital, furthering their dominance over smaller stakers.

Vitalik proposes several solutions to tackle these risks. First, in block construction, Ethereum currently uses an extra-protocol system (MEVBoost) where specialized builders create blocks, while validators simply propose them. To reduce centralization, he suggests moving towards systems like proposer-builder separation (PBS) and attester-proposer separation (APS), which distribute block production tasks across different actors, preventing any one group from gaining too much power. APS, which hands over more responsibilities to block builders while decentralizing validators, could be particularly effective in keeping power distributed.

On the staking side, one concern is that too much ETH may become staked, leading to over-concentration in a small number of large pools or liquid staking services. To address this, Vitalik explores the idea of capping staking rewards through adjustments to the issuance curve, which would discourage excessive staking by making rewards lower as more ETH is staked. Another approach could be introducing a two-tiered staking model, where only a portion of ETH is at risk of being slashed (the "risky" tier), while the rest remains in a lower-risk tier, allowing smaller stakers to participate without exposing themselves to major penalties.

These solutions aim to ensure that Ethereum’s PoS system remains decentralized and secure in the long term. By decentralizing both block production and staking incentives, Vitalik hopes to prevent the concentration of power and protect Ethereum’s core principles of security, fairness, and trustlessness.

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