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April 26, 2024

Centralised Control or Decentralised Governance? Understanding Ethereum’s Staking Policy Controversy

In Brief

Proposals to reduce the issuance rate to counter innovative staking solutions like Restaking, Liquid Staking, and Liquid Restaking are gaining momentum, impacting Ethereum’s governance and monetary asset position.

The Ethereum community is currently embroiled in an intense debate over the future of its monetary policy. This discussion has gained momentum due to proposals aimed at reducing the issuance rate to counter the growing dominance of innovative staking solutions like Restaking, Liquid Staking, and Liquid Restaking. The outcome of this debate has far-reaching implications for Ethereum’s governance and its position as a monetary asset within the larger cryptocurrency landscape.

One of the driving forces behind this rise in demand for staking is a topic of ongoing debate, with approximately 32,4 million ETH currently staked, representing nearly 27% of the total supply. This rise has been fueled by innovations that offer users more opportunities to earn yields, such as EigenLayer’s Restaking protocol and the broader adoption of Liquid Restaking. 

These developments have disrupted Ethereum’s originally designed Proof-of-Stake mechanism, which was intended to be self-regulating, with decreasing marginal returns as staking grew. However, with the influx of new revenue sources like MEV (Miner Extractable Value), Liquid Staking, and Restaking, this self-regulation has been undermined, sparking concerns about the growing influence of staking derivatives on Ethereum’s monetary policy and governance.

The crux of the current debate centres on the fear that the added incentives from these new yield sources could lead to unchecked expansion of Ethereum’s staking pool. If this continues, stETH or Liquid Restaking Tokens could gain such dominance that they might overshadow Ethereum’s role as a primary monetary asset, destabilising its ecosystem and altering its governance structure.

Efforts to constrain the yearly issuance of additional ETH to curb the expansion of the staking pool have faced stiff opposition from the community, especially from those who view any alteration to Ethereum’s monetary policy as a red line. 

According to Yahoo Finance, critics argue that the Ethereum Foundation and its affiliated “Core Devs” have failed to achieve the requisite “rough consensus” among the broader set of stakeholders. This perception of centralised control is reinforced by the observation that a small group of individuals within the Ethereum Foundation is responsible for the majority of Ethereum Improvement Proposals (EIPs), leading some to believe that the foundation wields disproportionate influence over Ethereum’s development.

To address these concerns, various suggestions have been proposed to increase community feedback mechanisms. These range from organising an annual Ethereum Assembly where stakeholders can voice their opinions on EIPs to creating an online feedback platform that allows for broader community input on major protocol changes. These initiatives could help bridge the perceived gap between the Ethereum Foundation and the wider community, reinforcing the decentralised nature of Ethereum’s governance.

Ultimately, the discussion surrounding Ethereum’s staking policy is about much more than just technical details—it reflects fundamental questions about governance, decentralisation, and Ethereum’s role as a monetary asset. As the Ethereum community continues to grow and diversify, developing robust mechanisms for stakeholder feedback and promoting openness will be essential to sustaining the transformation of the project’s decentralised ethos and ensuring its long-term success.

Disclaimer

In line with the Trust Project guidelines, please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. MetaversePost is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.

About The Author

Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.

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Victoria d'Este
Victoria d'Este

Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.

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