The number of Ethereum validators exceeds 1 million. How does “Rainbow Staking” alleviate the problem of staking centralization?

“Anti-correlated incentives” proposal

Although Vitalik Buterin recognizes the advantages that large validators provide to the Ethereum network, he still tries to strike a balance between large validators and the requirements of a decentralized and resilient network. On March 27, he proposed an innovative plan of "anti-correlated incentives" to address the problem of centralization among validators, increase penalties for failures of large validators, and enhance the decentralization and fairness of the Ethereum staking mechanism.

Correlated failures on the Ethereum network can result from the control of multiple validators from a single location, undermining the decentralized nature of the system. To address this, the “anti-correlated incentives” scheme will penalize validators for correlated failures, incentivizing them to expand the scope of their validator activity.

Vitalik Buterin believes that if multiple validators controlled by the same entity fail together, they will be subject to higher penalties than if a single validator fails, because any mistake made by a large validator will be replicated across all identities it controls. For example, validators in the same cluster (such as a staking pool) are more likely to experience correlated failures, perhaps due to shared infrastructure.

The proposal proposes to penalize validators that deviate from the average failure rate. If many validators fail in a given slot, the penalty for each failure will be higher.

Simulations show that this approach could reduce the advantage of large Ethereum staking platforms, as large entities are more likely to cause spikes in failure rates due to correlated failures. Potential benefits of the proposal include incentivizing decentralization by establishing separate infrastructure for each validator and making solo staking more economically competitive relative to staking pools.

Beyond that, Vitalik Buterin also proposed other options, such as different penalty schemes to minimize the advantages of large validators and examine the impact on geographic and client decentralization.

While Ethereum has penalty mechanisms such as slashing to deal with serious violations, these mechanisms are usually used to deal with extremely malicious or serious behavior. This proposal incorporates penalties into regular network operations and emphasizes promoting real diversity among validators. The purpose of this strategy is to ensure that efforts to increase decentralization promote substantive changes rather than just superficial compliance.