Ethereum co-founder Vitalik Buterin has shown concern for decentralised autonomous organisations (DAOs) creating a monopoly over node operators in liquidity staking pools. With this approach, a single staking token dominates the market which might lead to some issues for some people.
DAOs have no central leadership, so decisions are made from the bottom up and owned by the members. People who want to use it have no issues with decision-making but there are some red flags to it. Read further to find out why Buterin is not a big fan of the crypto market’s pivot to DAOs.
There are potential risks from bad actors
If only one staking token exists, there will only be one target for bad actors to look into. That is a big issue for all the potential risks that can be made to an ecosystem like Ethereum. Staking pools that adopt the DAO approach for governance over using node operators with their computers might pose a problem for the funds.
Buterin said, ‘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’. That can pose an issue for people using cryptocurrencies within the Ethereum space, ranging from those who purchase products to those who play at a crypto online casino.
Some bad actors can still stay under the radar which can leave a lasting impact on an ecosystem’s funds. Remaining anonymous while wreaking havoc in Ethereum will be a big issue for people who are unaware. Any asset that is involved in an illicit activity like that might be murky for some people because there is already proof that it was compromised.
Why Lido is the prime example for DAOs
Buterin has said that liquid staking provider Lido should be the shining example of a DAO validating any node operator. There will not be a singular protective layer like people want with DAO, there are still multiple layers that hackers have to get through, and they will most likely stop compromising the system when they see there are multiple targets.
He said, ‘To the credit of protocols like Lido, they have implemented safeguards against this, but one layer of defence may not be enough’.
Buterin noted that Lido is a good sign of progress as he has seen other DAOs struggling. With his co-sign, people are becoming more interested in Lido which will likely have a positive ripple effect towards other DAOs.
A variety of staking providers will be the best move according to Buterin
By staying with a good variety of providers, there will be a bevy of targets for bad actors to choose from. They won’t have to keep pounding on one door as they would have to tackle multiple parts which can be hard to hack.
There are many possible approaches to addressing an issue in the Ethereum space. The rise of DAOs focusing on one approach should not happen according to Buterin because there can be a systemic risk. By going with variety, there will be a decrease in the likelihood of any provider becoming too large for their good.
Take it from Ethereum’s creator because people love the progress of the crypto industry. There are plenty of assets and platforms out there like a crypto online casino or all the exchanges where cryptocurrencies can be bought. Buterin’s outlook for the crypto market is unique and his insights are well-respected by most of the space.
Rupali Gupta is a blogger and professional writer who loves to write about technology and entertainment. She is always up to date with the latest celebrity news and the entertainment world.