Vitalik Buterin Unveils New “Rainbow Staking” Framework For Ethereum – Here’s How It Works

Ethereum co-founder Vitalik Buterin unveiled a new “rainbow staking” framework on Wednesday that may help decentralize protocol control from the network’s largest players.

Vitalik Tackles ETH Staking Centralization at ETHTaipei 2024

Speaking at the ETHTaipei 2024 event on Wednesday, the renowned developer highlighted the overconcentration of ETH’s staked supply with centralized providers, including government-regulated exchanges like Coinbase and Binance.

Such staking providers haven’t colluded for anything nefarious so far, but the long-term risk of those entities doing so remains, according to Vitalik.

“We have become very dependent on ‘social pressure + virtue’,” said the co-founder, according to a translated report from Chinese outlet ABMedia Crypto.

“To what extent is this inevitable?” he asked. “If it is inevitable, we should be clearer about whether we rely on incentives or social pressure + virtue, rather than excessively rely on the latter.”

Vitalik continued to discuss the centralization risk of ETH staking on ETH Taipei, emphasizing that LIDO COINBASE BINANCE and others have an excessive share, and introduced the idea about "rainbow staking", a conceptual framework allowing protocol service providers, whether… pic.twitter.com/rfFlcxNzyc

— Wu Blockchain (@WuBlockchain) March 21, 2024

While solo staking without third-party providers is possible on ETH, it requires a minimum of 32 ETH to get involved.

The minimum was originally established to avoid overwhelming the blockchain with tiny stakers, and hopefully avoid excessive ETH requirements.

However, with that minimum now worth $112,000, the economic and technical barrier to entry has generated a swath of “lazy ETH holders” who delegate the task to massive third parties.

These groups also provide “liquid staking” – a service that rewards stakers with ETH-pegged tokens redeemable for their locked ETH.

At present, nearly 42 million ETH worth $145 billion is being staked on Ethereum, blockchain data shows.

What Is Rainbow Staking?

To remedy the issue, the “rainbow staking” framework could allow solo and professional staking providers to access differentiated tiers of staking depending on their needs.

According to Ethereum’s official blog, one example would be discriminating between heavy (slashable) and light (partially / non-slashable) clients, unbundling the roles that each service provider plays.

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

Rainbow staking would also distinguish between “capital allocators” and “service operators,” separating the roles of putting up an economic stake to secure the network from those of actual block validation.

Last month, Binance Labs backed Babylon – a team working to allow Bitcoin owners to earn staking yield on their BTC from other networks, potentially including Ethereum.