The number of Ethereum validators has surpassed one million, raising concerns about staking centralization.

The Ethereum network has recently reached an important milestone: the number of active validators has exceeded 1 million. The rapid growth of this number, especially after the Shapella upgrade, has attracted widespread attention in the market. Validators, as the core of Ethereum's Proof of Stake (PoS) mechanism, are crucial for the development of the network. However, this rapid expansion also brings potential technical challenges and centralization risks.

According to statistics from the data platform, the number of Ethereum validators surpassed 1 million on March 28. This growth trend, especially after the Shapella upgrade allowed for flexible withdrawal of staked funds, marks Ethereum's step towards a more scalable and energy-efficient network. However, with the surge in the number of validators, each validator needs to independently download and verify the latest data within a limited time, which poses higher demands on computing power.

It is worth noting that there are currently at least 850,000 validators belonging to users who stake ETH with centralized platforms. This is mainly because most ETH holders either do not have more than 32 ETH or cannot cope with the complexities of staking operations. This phenomenon has raised concerns about exacerbating centralization risks. If the continuous growth of network bandwidth allows validators with substantial computing resources to maintain efficient participation, it may lead to institutional-owned data centers suppressing individual self-hosted nodes, thereby pushing the Ethereum network towards centralization, which contradicts its fundamental principle of decentralization.

What needs to be clarified is that validators do not represent a single entity. Running a validator requires 32 ETH, but a single server can run multiple validators simultaneously. Although Ethereum's transition to a PoS validation mechanism is crucial for improving efficiency, finding a balance between the growth of the number of validators and the decentralization and availability of the network remains a pressing challenge.

"Anti-Correlation Incentive" Proposal

The founder of Ethereum proposed an innovative plan called "anti-correlated incentives" to address the issue of validators' centralization. This proposal aims to enhance the decentralization and fairness of the Ethereum staking mechanism by increasing penalties for large validators that fail.

Correlated failures may arise from a single location controlling multiple validators, which undermines the decentralized nature of the system. The "anti-correlated incentive" program encourages validators to expand their activity range by penalizing them for correlated failures.

The proposal suggests that if multiple validators controlled by the same entity fail simultaneously, they will face higher penalties than a single validator failure. This is because any errors by large validators will be replicated across all identities they control. For example, validators in the same cluster (such as a Staking Pool) are more likely to experience related failures, possibly due to shared infrastructure.

Specifically, the proposal suggests imposing corresponding penalties on validators that deviate from the average failure rate. If a large number of validators fail within a given period, the penalty for each failure will be higher.

The simulation results indicate that this approach may reduce the advantages of large Ethereum staking platforms, as large entities are more likely to experience a spike in failure rates due to related faults. The potential benefits of this proposal include encouraging the establishment of independent infrastructure for each validator and enhancing the economic competitiveness of individual staking relative to staking pools, thereby promoting decentralization.

In addition, other options have been proposed, such as different penalty schemes, to minimize the advantages of large validators and assess the impact on geographic and customer decentralization.

Although Ethereum already has punishment mechanisms such as slashing to address serious violations, these mechanisms are typically used to handle extremely malicious or severe behavior. The new proposal incorporates penalties into regular network operations, emphasizing the promotion of genuine diversity among validators. This strategy aims to ensure efforts to enhance decentralization, fostering substantial change rather than mere superficial compliance.

Rainbow staking

At a recent Ethereum conference, the concept of "Rainbow staking" was discussed, a method that encourages diversity among service providers and could potentially become a solution to Ethereum's centralization issues. Special attention was given to staking platforms with a large amount of Ether assets, particularly a certain liquid staking platform that holds two-thirds of the liquid staked Ether, which accounts for 7% of the total ETH circulation.

Currently, there is a lack of sufficient individual stakers (personal validators) in the Ethereum network, primarily due to technical challenges (such as running their own node) and financial constraints (having less than 32 ETH). As a result, many who wish to stake ETH can only earn returns through liquid staking solutions.

Rainbow staking can be divided into heavy staking and light staking. Heavy staking can be penalized and has signatures in each time slot. In contrast, light staking cannot be penalized and uses a lottery system for signatures. Currently, there is an attempt to clearly separate these two methods, and it may require both to sign on the same block to finalize the block, which aims to combine the security of these two methods.

A partner of a non-custodial staking service provider stated that in the past, small stakers were basically in a "role deficit" state in the validation work of the ETH network. The core purpose of Rainbow Staking is to enable small ETH stakers to participate in network validation in a lightweight manner. By increasing the number of participants, it partially offsets the centralization impact brought by top institutions and protocols holding large amounts of staked ETH.

The Rainbow staking framework aims to address the emergence of dominant liquidity tokens that could replace ETH as the main currency of the Ethereum network. It also seeks to provide competitive participation opportunities by enhancing the economic value of individual stakers.

The founder of Ethereum pointed out that more research and development work is still needed before Rainbow staking becomes a viable design for Ethereum. He believes that the biggest challenge is not even at the technical level, but at the philosophical level.