Vitalik Buterin, co-founder of Ethereum, has expressed worries regarding decentralized autonomous organizations (DAOs) exerting a monopoly over the selection of node operators in liquidity staking pools.
In a September 30 blog post, Buterin issues a warning that as liquid staking pools adopt the DAO approach for governance over node operators—who are ultimately responsible for the pool’s funds—it can expose them to potential risks from malicious actors.
“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.”
Buterin highlights staking protocol Lido (LDO) as an example with a DAO that whitelists node operators. Nevertheless, he underscores that, even though it has put safeguards in place to mitigate the risk of monopolization.
“To the credit of protocols like Lido, they have implemented safeguards against this, but one layer of defense may not be enough,” he noted.
In the meantime, he explains that Rocket Pool offers the opportunity for anyone to become a node operator by placing an 8 Ether (ETH) deposit, which, at the time of this publication, translates to approximately $13,406.
However, he notes this comes with its own risks. “The Rocket Pool approach allows attackers to 51% attack the network, and force users to pay most of the costs,” he stated.
Related: Ethereum is about to get crushed by liquid staking tokens
Buterin highlights that a possible approach to address this issue involves promoting and encouraging ecosystem participants to utilize a variety of liquid staking providers. He clarifies this would decrease the likelihood of any one provider becoming excessively large and posing a systemic risk.
“In the longer term, however, this is an unstable equilibrium, and there is peril in relying too much on moralistic pressure to solve problems.”
Magazine: Are DAOs overhyped and unworkable? Lessons from the front lines
