Ethereum: Is Buterin’s new proposal a case of ‘rainbow staking’ and more?

Ethereum [ETH] has gained the spotlight once more as the market awaits the upcoming approval of spot ETH ETFs. As of the latest update, Ethereum was trading at $3,580.82, and with growing investor interest, it is expected to surge to $5,000 soon.

Amidst this optimism, concerns have risen regarding the centralization risk in ETH staking. 

In a recent blog post, Ethereum co-founder Vitalik Buterin expressed his desire to enhance decentralization within the network with modifications to its penalty system.

“One tactic for incentivizing better decentralization in a protocol is to penalize correlations.”

This means that if an individual within the Ethereum network engages in misconduct, whether intentional or accidental, their penalty would be amplified if other actors as measured by the total ETH involved, also exhibit similar misconduct simultaneously.

The purpose of the proposal 

The reason behind this proposal stems from correlated failures due to shared infrastructure. Remarking on the same, Buterin, took to X (formerly Twitter) and emphasized, 

“Are validators in the same cluster (eg same exchange, same user) more likely than unrelated validators to miss attestations at the same time? If so, can we tweak rewards to favor decentralized staking? Possibly yes.” 

This underscores Ethereum’s ability to promptly address concerns and challenges, retaining its position as the leading altcoin.

What’s more to it? 

Well, this is not the first time, Buterin has come ahead with possible solutions within the Ethereum network. On the 21st of March, at the Ethtaipei 2024 event in Taiwan, he introduced the concept of “Rainbow Staking” to encourage decentralized participation.

This innovative framework aims to offer alternative avenues for investors interested in solo staking or participating in staking pools.

In conclusion, Buterin’s concern regarding centralization became evident with Lido Finance’s control over 70% of Ethereum-staked assets. Hence, these proactive measures highlight Ethereum’s commitment to tackling centralization concerns and maintaining its industry leadership.