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One layer of defense may not be enough to combat the centralization risks present in some ETH staking pool operators, said the Ethereum cofounder.

Photo by Choong Deng Xiang on Unsplash

Posted October 2, 2023 at 3:50 am EST.

Ethereum cofounder Vitalik Buterin raised concerns over the underlying mechanisms running on major ETH staking pool providers Lido and Rocket Pool.

Lido and Rocket Pool are the two largest liquid ETH staking pools by market share, allowing users to participate in staking ETH, earning rewards, without having to lock their funds in the staking smart contract.

In a Sept. 30 blog post, Buterin said that both Lidos model of having its decentralized autonomous organization (DAO) whitelist node operators and Rocket Pools model of having users put down 8 ETH to run a node had different issues.

Lido offers users a derivative token called staked ETH or stETH to represent the value of the amount staked, while Rocket Pool allows users to stake ETH by running a permissionless node.

Rocket Pools approach would allow malicious actors to 51% attack the network, forcing users to pay most of the costs, said Buterin. Meanwhile, Lidos DAO approach would create a scenario of potentially attactable governance gadget controlling a large portion of Ethereums validtors if a single staking token dominates.

To the credit of protocols like Lido, they have implemented safeguards against this, but one layer of defense may not be enough, said Buterin.

He proposed encouraging ecosystem participants to diversify to different staking pool operators as a short-term solution to the prospect of one provider becoming too large, and thereby, a system risk to the blockchain.

Another solution would be enshrining features at a protocol level to curtail the effects of centralization in other areas. In his view, minimal viable enshrinement could be the middle ground that addresses these challenges without being too narrowly focused.

Rather than enshrining a full liquid staking system, changing staking penalty rules to make trustless liquid staking more viable, said Buterin, as one example of how this could be carried out.

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Ethereum's Vitalik Buterin Warns of Risks in Lido and Rocket Pool - Unchained