Raising the stakes: Proposal to increase Ethereum max validator balance ignites debate

Quick Take

  • A proposal to increase Ethereum’s maximum validator balance has sparked diverse reactions from analysts, investors and community members.

The Ethereum community is engrossed in a debate sparked by a recent research proposal aimed at increasing the maximum validator balance on the network protocol from 32 ETH to 2,048 ETH. The proposal, which could make the network faster, has been called unnecessary by some.

As it currently stands, Ethereum validators must stake a flat 32 ETH, with the effective limit forcing large-scale staking operations to spin up multiple validators if they want to earn higher amounts of yield. Unsurprisingly, the practice has led to a big increase in the number of validators, and there are currently about 600,000 of them.

Michael Neuder, an Ethereum Foundation researcher and the mind behind the proposal, argues that a modification to the max validator balance would make Ethereum's beacon chain consensus layer more efficient and catalyze a level of growth conducive to achieving “single slot finality,” a term used to describe when a block can be finalized within a single slot, lasting approximately 12 seconds, as opposed to the existing time frame of around 15 minutes.

The case for the proposal

Neuder emphasized that a large number of validators can stress the Ethereum network. Raising the validator balance cap could curb the growth of active validators, thereby boosting network efficiency and enabling finality within a single Ethereum slot.

“The consensus nodes are strained handling the current validator set,” Neuder said, tying the issue to finality issues seen last month.

Such problems could be alleviated by increasing the max validator balance, and it can benefit exchanges and staking providers like Coinbase, which presently manage numerous validator nodes due to the cap. The consolidation of validators by increasing the max limit could simplify their operations, and staking operators could manage fewer validators with higher stakes, reducing complexity. 

The notion has earned the support of some in the Ethereum community, including investor Eric Conner. He asserts that this change would simplify key management for those with multiple validators and facilitate easier reward compounding.

The proposal "makes key management and staking hassle a lot easier for those of us with multiple validators," Conner said.

Not everyone's in favor 

Certain analysts and developers have raised concerns about possible pitfalls of the proposal, including potential heightened penalties for unintentional double attestations, known as "slashing."

Adam Cochran, Managing Partner at Cinneamhain Ventures, expressed apprehensions, saying that as more validator stakes are consolidated, the risk of slashing could significantly increase for validators. Cochran argued that the proposal would allow staking shops to consolidate more ETH on a single validator, leading to increased slashing risk for users. He went on to add that this change would primarily benefit "wealthy staking services."

Banteg, lead developer of Yearn Finance, deemed the move as “completely unnecessary,” arguing in a tweet that the network isn’t burdened by additional load, even with the presence of hundreds of thousands of validators.

Eleftherios Karapetsas, founder of the Rotki crypto portfolio app, sees potential advantages in the proposal but also cautioned that the development overhead needed to implement the change might deem it unnecessary.

“Would be cool to consolidate stake, but also perhaps unnecessary as there’s got to be quite some development overhead to achieve this,” he told The Block. "But the current system would need to be uprooted and rewritten to implement it."

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.