Reactions trail Buterin’s final part of Ethereum future: The Scourge

Backlash continues to emerge following Ethereum co-founder Vitalik Buterin’s latest suggestion for the future of Ethereum in “The Scourge.”

Ethereum (ETH) co-founder Vitalik Buterin recently unveiled the final chapter of his vision for the future of Ethereum, known as “The Scourge.”

Possible future of the Ethereum protocol, part 3: The Scourgehttps://t.co/mtzH1ZxTak

(I’ve done my best to be fair to all sides of the debate here!)

— vitalik.eth (@VitalikButerin) October 20, 2024

This proposal targets two main issues: increasing centralization in Ethereum’s block structure and the increasing dominance of liquid staking providers.

Buterin’s plan includes introducing a two-tiered staking system, capping penalties for stakers at 12.5%, and giving bidders more control over transaction selection.

The proposal follows warnings from Ethereum researcher Toni Wahrstätter, who raised concerns about the centralization of block production before Buterin’s announcement.

Over the past two weeks, two block producers Beaverbuild and Titan Builder have produced 88.7% of all blocks.

The main reason for this trend is the rise of special order flow (XOF), which is sold only by certain applications. XOF reduces real competition between builders on the block… pic.twitter.com/6o96iLQLCv

— Toni Wahrstätter ⟠ (@nero_eth) 17 October 2024

According to Wahrstätter, two builders (Titan Builder and Beaverbuild) have produced approximately 88.7% of Ethereum’s blocks in the last two weeks.

This alarming centralization is driven by the growth of private order flows, where some decentralized applications sell exclusive access to their transactions. This minimizes competition, narrows the transaction pool, and threatens decentralization.

Wahrstätter emphasized that while Ethereum has made progress in resisting censorship, this centralization could lead to more serious problems.

In the absence of strong competition, builders may be incentivized to take more risks, potentially destabilizing the network. According to Wahrstätter, these risks can be minimized by better public access to the order flow, which encourages more competition.

Industry reactions

The industry’s reactions fell short of Buterin’s proposed solution. Crypto Roundtable host Mario Raufal supported the proposal, especially the two-tiered staking approach.

He believes this change could significantly shake the dominance of big players in block production and transaction selection and promote a more decentralized environment.

VITALIK’S GAME PLAN FOR ETHEREUM SAKING VIBRATIONS

Vitalik Buterin gave some insight into Ethereum’s staking game, and it’s pretty crazy.

He says we should put a limit on how much Ether we can accumulate and keep penalties at a maximum of 12.5%.

With two players owning 88% of the block stage… pic.twitter.com/ngmaQLpeCj

— Roundtable by Mario Nawfal (@RoundtableSpace) 21 October 2024

But not everyone agrees. Rocket Pool’s community advocate, Dr. In particular, Jasper expressed skepticism about Buterin’s eventual proposal to reduce inflation.

Jasper believes this could lead to negative consequences for solo stakers. He noted that major liquid staking token providers such as Lido and Coinbase will continue to grow, even with yields as low as 0.7%, with minimal operating costs.

I disagree with Vitalik’s description of the downstream effects of low terminal inflation on solo stakers.

The base case for no trades is a 100% stake of large LSTs, with LST holders using commission and 16x leverage to generate roughly 2x solo staking returns. https://t.co/X0hPila5w0

— jasperthefriendsghost.eth (@drjasper_eth) October 20, 2024

In contrast, solo stakers, who typically have higher fixed costs, will struggle to remain profitable below a 0.8% annual rate of return.

He predicts that as staking rewards decrease, solo stakers will leave first, while LST providers will remain profitable even as returns approach fractions of one percent.