Ethereum’s co-founder, Vitalik Buterin, recently shared an interesting proposal related to validator incentives. The co-founder of Ethereum has suggested extending anti-correlation penalties to more routine validator failures as a way to incentivize better decentralization on the network. The core idea is to penalize validators more heavily when their failures coincide with those of other validators, which tends to happen more frequently among larger staking pools and whales.
Currently, Ethereum only anti-correlation incentives are incorporated in a few isolated issues, such as coordinated slashing events. Nevertheless, these rare circumstances may not be enough to foster meaningful decentralization at all times as indicated by Buterin. His idea is that even small and insignificant issues, such as missed attestations that nearly every validator experienced occasionally, would carry similar anti-correlation penalties.
The reason here is that large stakeholders with many validators tend to undergo a correlated failure across their nodes since they mostly have shared internet connections or common physical server setups. Infrastructure cost savings notwithstanding, reduced costs of infrastructure increase the probability of a simultaneous breakdown on a wide scale.
Buterin analyzed real attestation data, which combine validator clustering information to test this hypothesis. The results of Buterin indicate that validators belonging to the same entities or pools do indeed exhibit higher rates of simultaneous failures compared to statistically expected rates if the failures were independent events.
Proposed Ethereum Penalty Model
Based on these findings, Buterin suggests a strawman penalty model that calculates the recent failure rate versus the trailing average. This could mean validators getting anti-correlation penalties proportional to this rate difference in slots with above-average missed attestations. His initial modelling indicates that this approach may reduce the current advantage whales and staking pools have over smaller validators.
Even though further analysis is still required, Buterin outlined several areas for future work. These include confirming the significance of correlated failures, optimizing the penalty formula, proving incentive scheme safety properties, and studying potential secondary impacts such as promoting geographic and client diversity.
If implemented, the goal of such anti-correlation penalties would be creating a more level playing field that counteracts centralization forces arising from economies of scale. However, it could also compel large players to further decentralize their infrastructure to minimize penalties.
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