How Ethereum aims to reduce the risks of centralization

Vitalik warns of centralization problems with Ethereum. There are currently too few ETH solo stakers. His solution? Rainbow staking.

Speaking at ETHTaipei 2024, Ethereum founder Vitalik Buterin pointed to the excessive concentration of ETH stakers at centralized providers, including exchanges such as Coinbase and Binance.

He emphasized that there are currently not enough solo stakers on Ethereum. The reasons? Technical challenges such as operating their own full node and financial constraints such as having to own at least 32 Ether (ETH).

Originally, the 32 ETH minimum was set to avoid burdening the Ethereum blockchain with countless small stakers. However, with the ETH price at 3,000, a substantial 100,000 Ether is now required to meet the minimum.

Many Ether hodlers have therefore delegated staking to large third-party providers that offer a liquid staking service. This rewards users with ETH-linked tokens redeemable for their locked, original ETH. The most popular liquid staking solution is Lido, which has a high market dominance of 61.36 percent.

One possible solution to the centralization problems would be rainbow staking. Vitalik explained: "The idea here is to divide strike explicitly into two types and call them heavy strike and light strike."

This could prevent the emergence of a dominant liquid staking token, which could replace ETH as the main currency in the Ethereum network. It would also create positive economic incentives for solo stakers. However, he himself noted that more research and development is needed before Rainbow Staking becomes a viable design for staking on Ethereum.