In the wake of Ethereum’s proof-of-stake merge, staking pools have become the default source of validation on the network.
But some critics say that as a result of that change, the network is now more centralized than ever.
Speaking on the state of Ethereum network centralization post-Merge, StakeWise co-founder Kirill Kutakov and business development lead Jordan Sutcliffe joined The Block for an exclusive interview. StakeWise is an Ethereum and Gnosis Chain staking pool company that hosts more than 75,000 ETH in staked assets.
“As someone that’s very much aligned with the values of decentralization and censorship resistance, I am personally alarmed,” said Kutakov, who added that, with respect to the services available to counteract network centralization, “the whole industry could have done better.”
Kutakov said that perhaps as soon as December 2022, his company will launch StakeWise V3, an open source protocol with a noncommercial license that will allow users to spin up validator nodes and adjust staking fees, and provide additional measures to ensure the safety in a bid to attract depositors who stake ETH. Kutakov believes the protocol will help introduce a layer of decentralization within the StakeWise user base and become a model that he hopes other pools will adopt.
Through the yet-to-be-launched protocol, stakers will be able to select nodes based on categories including geographical locations, the extent of collateralization, operational performance, state infrastructure, and other metrics that StakeWise populates with on-chain data. Each category will contribute to a quantifiable “vault score,” the algorithm for which Kutakov said the team is still fine-tuning.
Since node operators with higher vault scores might attract a majority of depositors, Kutakov said StakeWise V3 will “penalize participants that control too high or too big of a share of the network, precisely out of concerns like centralization and censorship potential.”
Concerns over censorship on Ethereum may be more prescient than ever, as on-chain metrics would seem to back critics of Ethereum’s centralization.
Currently, five major staking pools, account for just over 76.38% of staked ETH, with Lido leading the pack. Lido is followed by Coinbase, Kraken, Binance, and an unknown pool, based on data from Beaconcha.in.
As staking pools show more centralization on the network, the prevailing use of a popular maximal extracted value (MEV) service, Flashbots, means that censorship is also on the rise. Since The Merge, Flashbots censored all transactions from sanctioned cryptocurrency mixing service Tornado Cash, according to a study published by Ethereum researcher Toni Wahrstätter.
StakeWise currently offers Flashbots integration on its platform and intends to offer it to solo stakers on its upcoming V3 protocol. Acknowledging the conflict of ideals, Kutavok expressed that the team’s personal opinions shouldn’t be construed with that of the StakeWise DAO, which is responsible for the project’s general governance.
“In the team’s opinion, censorship in its various forms is undesirable on Ethereum, and we publicly expressed support for relays that do not censor transactions,” said Kutakov, who added that the team leaves the decision of whether or not to use relays that may censor wallet addresses to the discretion of node operators.