Vitalik Buterin, co-founder of Ethereum, recently wrote an article titled “The Scourge: Exploring the Future of Ethereum Protocols (Part 3)” to delve into the issues of MEV and centralization in PoS network staking. The Scourge aims to address and mitigate the risks of centralization in Ethereum’s Proof of Stake (PoS) network staking.
Vitalik starts off by stating that if there are economies of scale in participating in the core PoS mechanism, it would naturally lead to large stakers dominating and smaller stakers exiting to join larger staking pools, thereby increasing the risks of 51% attacks, transaction censorship, and other crises. In addition to the risks of centralization, there is also the risk of value extraction, where a small group of people capture value that should have flowed to Ethereum users.
The main objectives of The Scourge upgrade are to minimize centralization risks in Ethereum’s staking layer, particularly in block construction and capital supply for staking pools, also known as MEV (Miner/Maximizer Extractable Value), and to minimize the risks of extracting excessive value from users.
Vitalik outlines possible approaches that can be taken for block construction and capital supply to achieve these goals. He mentions that significant progress has already been made this year in terms of solutions for block construction, particularly the fusion of inclusion lists as an ideal solution, and important research on PoS economics that can limit the percentage of ETH staked by implementing a two-layer staking model and reducing issuance.
In terms of block construction, Vitalik presents two possible solutions for addressing MEV issues such as sandwich attacks:
1. FOCIL + APS: This proposal involves the formation of a committee consisting of multiple inclusion list builders for each block. To delay a transaction by one block, the committee must review it. This solution combines FOCIL (Fork-choice-enforced inclusion lists) with the final proposer chosen through auctions, which includes the inclusion lists but allows for reordering and adding new transactions. This approach is commonly referred to as FOCIL + APS (attester-proposer separation).
2. Multiple Concurrent Proposers (MCP): For example, the BRAID proposal aims to distribute the block production process among many participants instead of dividing it into low economies of scale and high economies of scale portions. MCP works by having multiple proposers generate transaction lists and then using deterministic algorithms (e.g., sorting by fee from high to low) to determine the order.
Vitalik notes that currently, 30% of Ethereum’s supply is staked, which he considers “more than enough to protect Ethereum from 51% attacks.” However, if this indicator approaches 100%, there may be risks such as regular stakers becoming less enthusiastic and delegating their tokens to centralized operators, weakening the credibility of the slashing mechanism, unnecessary issuance of approximately 1 million ETH per year, and the possibility of a single liquid staking token taking over most of the stake and even the “currency” network effects of ETH itself.
To address these risks, Vitalik proposes two possible solutions: limiting the amount of ETH that users can stake and implementing a two-layer staking model where staked ETH is divided into risky (slashable) and risk-free (non-slashable) staking, with the former offering higher returns than the latter.
Lastly, Vitalik highlights that Ethereum is not just an L1 but also an ecosystem, and suggests possible application-layer solutions to the aforementioned issues, including developing dedicated staking hardware solutions, rewarding individual stakers through airdrops, decentralized block construction markets, and minimizing MEV through application and oracle design.