Ethereum's Vitalik Buterin Warns of Possible DAO Slippage

Vitalik Buterin, who had recently engaged in extensive discussions about the possibility of integrating even more features into Ethereum, has once again made waves in the cryptosphere. In his view, Ethereum staking pool operator DAOs could be the source of a major systemic crisis. Let’s take a closer look!

Concerns Over Ethereum’s DAOs

In a recent publication, Vitalik Buterin advocated at length for the potential integration of more advanced features directly into Ethereum. This may contradict the fundamental philosophy of blockchain, which emphasizes minimal complexity. However, it won’t prevent the deployment of layer 2 applications and solutions on Ethereum.

Dans un récent article de blog, Vitalik Buterin, cofondateur d'Ethereum, met en garde contre les vulnérabilités possibles aux attaques lorsque les pools de liquidité adoptent l'approche DAO. https://t.co/N9iH88BAwY

— Cointelegraph France (@FRCointelegraph) October 1, 2023

“Vitalik Buterin, co-founder of Ethereum, warns that when DAOs control node operators in staking pools, they could become an ‘attackable governance gadget’ if a single staking token becomes dominant.”

According to Cointelegraph, Vitalik has a solution to reduce the chances of such a danger associated with the current DAO approach to node operator governance. Note that these decentralized autonomous organizations also manage the funds of ETH pools.

Here is the opinion of Ethereum’s co-founder:

“Each version of staked ETH needs to have some mechanism determining who can be the underlying node operators. It can’t be unrestricted, because then attackers would join and amplify their attacks with users’ funds. Currently, the top two are Lido, which has a DAO whitelisting node operators, and Rocket Pool, which allows anyone to run a node if they put down 8 ETH (ie. 1/4 of the capital) as a deposit. These two approaches have different risks: the Rocket Pool approach allows attackers to 51% attack the network, and force users to pay most of the costs. With the DAO approach, if a single such staking token dominates, that leads to a single, potentially attackable governance gadget controlling a very large portion of all Ethereum validators. To the credit of protocols like Lido, they have implemented safeguards against this, but one layer of defense may not be enough.”

Speaking of such an attack, we have Curve Finance, which paid a heavy price for a vulnerability in its pools. The crypto community, as well as Ethereum developers, would not want a similar incident to recur.

Fears of Ethereum Centralization

Ethereum’s shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) has completely changed the landscape across the ecosystem. The Merge has indeed made the blockchain more environmentally friendly.

If in 2022, Ethereum’s energy consumption ranged from 90 to 115 terawatt-hours, The Merge has nearly reduced it to zero: 0.03 kilowatt-hours per transaction. Perhaps the research commissioned by the European Union on this subject will confirm (or not) the accuracy of these figures.

The Shapella update, successfully implemented by the Ethereum team in April, has revised the ETH staking process. Liquid staking providers like Rocket Pool and Lido, mentioned earlier, are among the major beneficiaries of this mini-revolution.

When analysts tackled Ethereum’s centralization issues, many pointed fingers at Lido, which currently holds 72% of all staked ETH tokens.

Is this Vitalik Buterin’s goal, as he did not overlook this pseudo-centralization of Ethereum in his recent exposition? The integration of additional features into the blockchain could address this situation. And concerning this security matter, Vitalik has already announced, in another blog post, the creation of secure ETH wallets.