In previous articles, Vitalik has discussed the “Merge” and “Surge” upgrades for Ethereum, as well as potential improvements to the Ethereum staking system. He has also set an ambitious goal of achieving the ability to process 100,000 transactions per second in both the layer 1 and layer 2 networks of the blockchain.
In his latest article, Vitalik emphasizes that centralization risks in the proof-of-stake system are “one of the biggest risks Ethereum L1 faces” due to economic pressures. He outlines various methods to mitigate these risks in the “Scourge” upgrade. Buterin points out that these risks mainly manifest in two aspects: block construction and capital provisioning for staking.
In the first part of the article, Vitalik discusses the issue of Maximum Extractable Value (MEV) and notes that currently “two actors (proposers and block constructors) determine around 88% of Ethereum blocks,” which increases censorship risk and may result in transaction delays of several minutes, especially in time-sensitive liquidations or token swaps.
Vitalik believes that one “key” element in the solution could be an encrypted transaction pool, which would make it more difficult for block proposers to censor specific transactions. He also acknowledges that designing a system that is “both robust and relatively simple, and reasonable to implement” still requires further effort.
Vitalik points out that a “core challenge” lies in countering MEV with various approaches: “Any substantial power retained in the hands of stakers can be power related to MEV,” meaning that a trade-off must be made between stakers’ ability to choose transactions and their potential to extract value from the blockchain.
He proposes two schemes with different trade-offs: one is using inclusion lists, where stakers propose a list of transactions that the builder must include in the next block; the other is using multiple simultaneous proposers to distribute the block production process among multiple actors.
Vitalik concludes by stating, “A conservative and effective strategy is to take a ‘wait and see’ approach, where we can start with a scheme that limits stakers’ power and auctions off most of the power, and gradually increase stakers’ privileges as we gain more understanding of how the MEV market operates.”
Vitalik notes that currently about 30% of Ethereum’s supply is staked, which is “sufficient to protect Ethereum from 51% attacks.” However, if this proportion approaches 100%, it may introduce risks such as weakening the effects of slashing, unnecessary issuance of approximately 1 million Ether per year, and the potential for a single liquid staking token (LST) to replace Ethereum’s own “monetary” network effect.
He proposes two main solutions: setting a cap on the amount of Ether that users can stake, and implementing a two-layer staking system that divides staked Ether into reducible and non-reducible portions. Vitalik writes in the article, “The main remaining task here is to either accept the risk that almost all Ether goes into LST, or to finalize the details of one of these proposals and achieve consensus on its parameters.”
Additionally, Vitalik also proposes application-level solutions, including developing and promoting dedicated staking hardware, rewarding individual stakers through airdrops, and reducing MEV through more refined application design.
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