Vitalik Buterin is cooking up a new way to decentralize Ethereum staking

Ethereum co-founder Vitalik Buterin suggested penalizing validators proportionally to the deviation from their average failure rate.

Ethereum co-founder Vitalik Buterin has proposed a technique to incentivize better decentralization of Ethereum by penalizing correlated failures among validators. 

Buterin posted his thoughts on March 27 regarding supporting decentralized staking “through more anti-correlation incentives” to the Ethereum Research forum.

He suggested if multiple validators controlled by the same actor fail together, they would receive a higher penalty than if they failed independently.

“The theory is that if you are a single large actor, any mistakes that you make would be more likely to be replicated across all ‘identities’ that you control,” he said.

Buterin observed that validators within the same cluster, such as a staking pool, are more likely to experience correlated failures — likely due to shared infrastructure.

The proposal suggests penalizing validators proportionally to the deviation from the average failure rate. If many validators fail in a given slot, the penalty for each failure would be higher.

Simulations suggest this approach could reduce the advantage of large Ethereum stakers over smaller ones, as large entities are more likely to cause spikes in the failure rate due to correlated failures.

Potential benefits to the proposal include incentivizing decentralization by having a separate infrastructure for each validator and making solo staking more economically competitive relative to staking pools.

Buterin proposed other options, such as different penalty schemes to minimize the average big validator’s advantage over little validators and examining the impact on geographic and client decentralization.

He didn’t mention the possibility of reducing the solo staking amount from 32 Ether (ETH) which currently equates to roughly $111,500.

Related: 3 reasons why Ethereum’s market cap dominance is on the rise

Staking pools and liquid staking services such as Lido remain popular because they allow stakers to participate with a smaller amount of ETH.

Lido currently has $34 billion worth of ETH staked, equating to around 30% of the total supply.

Ethereum advocates and developers have previously cautioned over Lido’s dominance and “cartelization,” whereby outsized profits compared to non-pooled capital can be extracted.