Vitalik Buterin, the co-founder of Ethereum, has proposed a solution aimed at reducing the risk of individual liquid staking providers reaching a point where they pose a systemic threat.

In a blog post on September 30, Buterin expressed concerns about decentralized autonomous organizations (DAOs) gaining a monopoly over the selection of node operators in liquidity staking pools. He warned that this approach exposes the pools to potential risks from malicious actors, as the node operators are responsible for managing the funds.

According to Buterin, if a single staking token dominates the DAO approach, it creates a vulnerable governance mechanism that controls a significant portion of all Ethereum validators, making it susceptible to attacks.

Buterin cited the example of Lido, a staking protocol that utilizes a DAO to white list node operators. He acknowledged that Lido has implemented certain safeguards but stressed that relying on a single layer of defense might not be sufficient.

To address this issue, Buterin proposed encouraging ecosystem participants to utilize a variety of liquid staking providers. This approach would decrease the likelihood of any provider becoming too dominant and posing a systemic risk. However, he cautioned against relying solely on moralistic pressure to solve the problem, emphasizing the need for more stable long-term solutions.