Vitalik Buterin Introduces New “Rainbow Staking” System for Ethereum – Details on Its Functionality

Ethereum co-founder Vitalik Buterin introduced a new “rainbow staking” framework on Wednesday that could assist in decentralizing protocol governance away from the network’s largest stakeholders.

Vitalik Addresses ETH Staking Centralization at ETHTaipei 2024

During his presentation at the ETHTaipei 2024 event on Wednesday, the prominent developer pointed out the significant concentration of ETH’s staked supply among centralized entities, including government-regulated exchanges such as Coinbase and Binance.

While these staking providers have not engaged in any malicious collusion to date, Vitalik noted that the long-term risk of such behavior persists.

“We have become very reliant on ‘social pressure + virtue’,” stated the co-founder, as reported by the Chinese outlet ABMedia Crypto.

“To what extent is this unavoidable?” he inquired. “If it is unavoidable, we should be more explicit about whether we depend on incentives or social pressure + virtue, rather than overly depending on the latter.”

Vitalik further elaborated on the centralization risks associated with ETH staking at ETH Taipei, stressing that LIDO, COINBASE, BINANCE, and others hold an excessive portion, and he introduced the concept of “rainbow staking,” a framework that enables protocol service providers, whether… pic.twitter.com/rfFlcxNzyc

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Although solo staking without third-party providers is feasible on ETH, it necessitates a minimum of 32 ETH to participate.

This minimum was initially set to prevent the blockchain from being inundated with numerous small stakers and to ideally mitigate excessive ETH requirements.

However, with that minimum now valued at $112,000, the economic and technical entry barrier has led to a significant number of “lazy ETH holders” who delegate the responsibility to large third-party providers.

These entities also offer “liquid staking” – a service that rewards stakers with ETH-pegged tokens that can be redeemed for their locked ETH.

Currently, approximately 42 million ETH, valued at $145 billion, is being staked on Ethereum, according to blockchain data.

What Is Rainbow Staking?

To address this challenge, the “rainbow staking” framework could enable both solo and professional staking providers to access various tiers of staking based on their requirements.

As per Ethereum’s official blog, one illustration would involve differentiating between heavy (slashable) and light (partially / non-slashable) clients, thereby unbundling the roles that each service provider fulfills.

“This allows for differentiated classes of service providers to be maximally effective in each service category, instead of grouping all under a single umbrella of expectations, demanding everything from everyone,” the blog post states.

Rainbow staking would also differentiate between “capital allocators” and “service operators,” separating the responsibilities of providing an economic stake to secure the network from those involved in actual block validation.

Last month, Binance Labs supported Babylon – a team aiming to enable Bitcoin holders to earn staking yield on their BTC from other networks, potentially including Ethereum.

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