Ethereum co-founder, Vitalik Buterin, has voiced concerns regarding the operational mechanisms of major ETH staking pool providers. Lido and Rocket Pool were among the protocols mentioned.
Lido and Rocket Pool, two prominent liquid ETH staking pools, have gained significant market share. These platforms enable users to engage in ETH staking, earning rewards, without locking their funds in a staking smart contract.
In a blog post dated September 30th, Buterin highlighted issues with both platforms. He pointed out that Lido’s approach, which involves its decentralized autonomous organization (DAO) whitelisting node operators, and Rocket Pool’s method, requiring users to deposit 8 ETH to operate a node, have distinct challenges.
Lido provides users with a derivative token known as “staked ETH” or stETH to represent the staked amount’s value. On the other hand, Rocket Pool allows users to stake ETH through permissionless nodes.
The problem with these protocols
Buterin expressed concern that Rocket Pool’s approach could potentially enable malicious actors to execute a 51% attack on the network. Where users bear most of the associated costs, conversely, Lido’s DAO approach might create a scenario where a dominant staking token gains control of a substantial portion of Ethereum’s validators, posing a risk to the network’s security.
Buterin acknowledged that protocols like Lido have implemented safeguards to address these issues. However, he suggested that a single layer of defense might not suffice. To mitigate this risk, he proposed encouraging ecosystem participants to diversify across various staking pool operators in the short term. This diversification would reduce the risk of a single provider becoming overly dominant and posing a systemic risk to the blockchain.
Additionally, Buterin suggested the possibility of implementing protocol-level features to counteract centralization in various areas. He referred to the concept of “minimal viable enshrinement” as a potential middle-ground solution. This approach would address the challenges without being overly restrictive. For instance, rather than fully enshrining a liquid staking system, one could consider adjusting staking penalty rules to make trustless liquid gambling more feasible.
