Developers and members of the Ethereum community are currently engaged in debates surrounding the potential centralization the network may face in the future. The largest staking pool, known as Lido, holds a significant share of the market, leading to the creation of proposals to mitigate this threat.
One of these proposals is EIP-7514 (EIP stands for “Ethereum Improvement Proposal”), conceived by developers Dapplio and Tim Beiko. While this EIP has already been added to the main Ethereum repository, it is still undergoing review for possible inclusion in the upcoming Deneb #3499 update, nicknamed “Flow Control Valve,” which is expected to take place in the coming months.
This proposal aims to limit the number of validators that can join Ethereum staking during each approximately six-minute “epoch.” Instead of allowing the addition of thousands of validators per day, EIP-7514 establishes a limit per epoch.
According to Nolan, this measure would make it more time-consuming for a staking pool to accumulate over 50% of the total Ethereum supply.
In an article titled “Concerns about the Future of Staking,” published on the blog of digital asset investment manager CoinShares, Luke Nolan emphasizes that EIP-7514 may provide a “short-term solution” to prevent Lido or others from acquiring too much stake in Ethereum staking.
Nolan also notes that the long-term strategy is still not fully defined. However, EIP-7514 gives developers “more than enough time” to think of ways to prevent potential threats to the network.
Among the potential solutions proposed to avoid excessive centralization in Ethereum staking pools are fee burning, increasing the maximum effective balance for validators, reducing staking rewards, and lowering entry barriers for liquid staking providers. The goal is to promote competition against Lido and its competitors.
Centralization in staking pools poses a substantial risk to a network operating based on the Proof of Stake (PoS) algorithm. This is because a pool that accumulates over 50% of the stake would have disproportionate control over the network, which goes against the fundamental principle of decentralization.
Furthermore, a malicious actor with over 50% stake could carry out attacks such as double spending or the 51% attack. These attacks could allow for the reorganization of the Ethereum blockchain in their favor and the use of already spent cryptocurrencies in new transactions.