Vitalik Buterin, Ethereum’s Co-founder, Proposes Penalizing Validators Based on Deviation from Average Failure Rate

Ethereum co-founder Vitalik Buterin recently proposed a method to promote greater decentralization within the Ethereum network by implementing penalties for correlated failures among validators.

In a post on March 27 to the Ethereum Research forum, Buterin advocated for reinforcing decentralized staking through “anti-correlation incentives.” His idea suggests that if multiple validators controlled by the same entity experience failures simultaneously, they would face more severe penalties compared to individual failures.

Buterin highlighted the likelihood of correlated failures among validators within the same cluster, such as staking pools, often sharing infrastructure. His proposal involves penalizing validators based on their deviation from the average failure rate, with higher penalties imposed when numerous validators fail in a given slot.

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By simulating this approach, Buterin believes it could diminish the advantage enjoyed by larger Ethereum stakers over smaller ones, as significant entities are more prone to causing spikes in failure rates due to correlated failures.

The proposed benefits include encouraging decentralization by necessitating separate infrastructure for each validator and making solo staking economically competitive relative to staking pools.

Buterin also suggested exploring other penalty schemes to mitigate the advantage of larger validators over smaller ones, as well as assessing the impact on geographical and client decentralization.

However, Buterin did not address the possibility of reducing the staking amount from the current 32 Ether, which is approximately valued at $3,560. This omission may be noteworthy, considering the popularity of staking pools and liquid staking services like Lido, which enable participation with smaller amounts of ETH.

As of now, Lido boasts $34 billion worth of ETH staked, representing about 30% of the total supply. While these services have gained traction, Ethereum advocates and developers have raised concerns about the dominance and potential “cartelization” of platforms like Lido, which could lead to outsized profits compared to non-pooled capital.