Staking centralization invites censorship. The capital efficiency of PoS consolidates stake with large, regulated entities like Coinbase or Lido. These entities are primary targets for regulatory enforcement, creating a single point of failure for network neutrality.
the-cypherpunk-ethos-in-modern-crypto
Blog
Why Proof-of-Stake Must Evolve to Resist Censorship
Current PoS designs with high capital requirements and centralized liquid staking providers create a clear path for regulatory capture of validator sets, betraying crypto's foundational cypherpunk principles. This analysis outlines the systemic risk and the architectural shifts required.
introduction
THE CENTRALIZATION TRAP
The Staking Paradox: More Secure, Less Sovereign
Proof-of-Stake's economic security creates a systemic vulnerability to state-level censorship.
Sovereignty is a protocol-level feature. A blockchain's resistance to external coercion depends on its validator set distribution. The current liquid staking derivative (LSD) model, dominant on Ethereum and Solana, outsources this sovereignty to a handful of providers.
The solution is enforced decentralization. Protocols must mandate technical and geographic distribution. Distributed Validator Technology (DVT) from Obol and SSV Network, or EigenLayer's cryptoeconomic slashing for misbehavior, are necessary countermeasures to re-decentralize the base layer.
Evidence: Post-Merge, over 33% of Ethereum's stake is controlled by just four entities. This concentration violates the 1/3 Byzantine fault tolerance assumption, making the chain practically censorable if those entities are compelled.
key-trends
CENSORSHIP RESISTANCE
The Three Fault Lines in Modern PoS
Current Proof-of-Stake designs concentrate power in a few hands, creating systemic vulnerabilities to state-level and corporate coercion.
01
The Problem: Geographic & Jurisdictional Centralization
Over 65% of Ethereum validators are hosted in the US and Germany. This creates a single point of failure for OFAC compliance demands, as seen with Tornado Cash sanctions. A nation-state can censor transactions by coercing a handful of corporate staking providers.
- Single Jurisdiction Risk: A government can target ~3-5 entities to halt a chain.
- Infrastructure Chokepoints: Centralized cloud providers (AWS, GCP) host a majority of nodes.
65%+
US/EU Validators
3-5
Critical Entities
02
The Problem: Capital Efficiency Creates Oligopolies
Liquid Staking Derivatives (LSDs) like Lido and Rocket Pool abstract stake but consolidate it. The rich-get-richer dynamic of PoS rewards means the largest staking pools attract more capital, reducing the effective validator set.
- Lido's >30% Dominance: Nears the 33% censorship threshold for Ethereum.
- Barrier to Entry: Running a solo validator requires 32 ETH ($100k+) and technical expertise, pushing users to centralized pools.
>30%
Lido Market Share
32 ETH
Solo Validator Cost
03
The Solution: Distributed Validator Technology (DVT)
DVT, pioneered by Obol and SSV Network, cryptographically splits a validator key across multiple operators. This removes single points of failure and geographically distributes responsibility.
- Fault Tolerance: A validator stays online even if >â…“ of its operators are down or censoring.
- Permissionless Sets: Enables trust-minimized staking pools where no single entity controls funds.
>33%
Fault Tolerance
0
Single Point of Failure
04
The Solution: Enshrined Proposer-Builder Separation (PBS)
Ethereum's roadmap aims to formally separate block building from proposing. This prevents validators from censoring transactions at the source by outsourcing block construction to a competitive, permissionless market of builders.
- Breaks Monopoly: A censoring validator must use a censoring builder, losing MEV revenue.
- Market Enforcement: Builders who include profitable, censored transactions will outcompete compliant ones.
100%
Builder Competition
MEV
Economic Incentive
05
The Solution: Minimally Extractive Staking Protocols
Protocols like EigenLayer and Babylon are creating new, non-financial slashing conditions. This allows stakers to earn yield by securing other services (oracles, rollups) without increasing their share of consensus power.
- Dilutes LSD Power: Redirects stake yield away from pure consensus towards useful work.
- Sybil Resistance: Uses existing stake for new networks, avoiding fresh centralization.
Multi-Yield
Stake Utility
Sybil Proof
Security Model
06
The Litmus Test: Can You Blacklist a Transaction?
The ultimate metric for censorship resistance. If a state actor can reliably prevent a transaction from finalizing, the chain is compromised. Solutions must be evaluated on this axis, not just decentralization theater.
- Current State: Possible via OFAC-compliant relays and dominant staking pools.
- Target State: Requires a global, adversarial operator set that is economically irrational to coerce.
Today: Yes
Can Censor
Target: No
Can Censor
CENSORSHIP-RESISTANCE MATRIX
Validator Centralization: The Hard Numbers
Quantitative comparison of censorship resistance across leading Proof-of-Stake networks, highlighting the concentration risk among top validators.
| Metric | Ethereum | Solana | Cosmos Hub | Sui |
|---|---|---|---|---|
Top 3 Validators' Share of Staked Supply | 28.5% (Lido, Coinbase, Figment) | 32.1% | 35.8% | 68.4% |
Entities Required for 33% Attack (Liveness) | 2 | 2 | 1 | 1 |
Entities Required for 51% Attack (Safety) | 3 | 3 | 2 | 2 |
Client Diversity (Top Client's Share) |
| ~100% (Solana Labs) |
| ~100% (Sui Fullnode) |
OFAC-Compliant Block Share (90-day avg) | 78% | 99%+ | N/A | N/A |
Minimum Viable Stake (Hardware + Bond) | $100k+ (32 ETH + infra) | $0 (Delegation) | ~$10k (Self-Bond + infra) | ~$0 (Delegated Staking) |
Native MEV-Boost Relay Censorship | ||||
Proposer-Builder Separation (PBS) Adoption |
|
deep-dive
THE VULNERABILITY
The Censorship Attack Surface
Proof-of-Stake's reliance on centralized block builders and validators creates a systemic censorship risk that undermines credible neutrality.
Validator centralization invites state-level pressure. The MEV-Boost relay cartel and Lido's staking dominance create single points of failure. Regulators can coerce these entities to censor transactions, as seen with Tornado Cash sanctions compliance on Ethereum.
Proposer-Builder Separation (PBS) fails. PBS outsources censorship power to block builders like Flashbots and bloXroute. This creates a regulatory honeypot; builders must comply with OFAC or face legal action, breaking the chain's liveness guarantee.
The economic design is flawed. Slashing mechanisms punish dissent, not censorship. A validator following a censorship order faces zero protocol penalty, creating a perverse incentive to comply with external pressure over network integrity.
Evidence: After OFAC sanctions, >50% of Ethereum blocks were OFAC-compliant via MEV-Boost relays. This proves the network's credible neutrality is conditional, not absolute, on validator behavior.
counter-argument
THE GOVERNANCE REALITY
The Steelman: "But Decentralization is Improving!"
Proof-of-Stake's current validator governance models are structurally vulnerable to regulatory capture and censorship.
Staking centralization is systemic. The largest PoS networks rely on a handful of dominant node operators like Coinbase, Binance, and Lido. This creates a single point of regulatory pressure for OFAC compliance, as seen with Tornado Cash sanctions on Ethereum.
Governance tokens fail. Delegated voting with tokens like UNI or AAVE creates plutocracy, not resilience. Large holders and VCs control outcomes, making protocols like Arbitrum or Optimism susceptible to legal demands against their core development teams.
The slashing threat is hollow. Penalizing validators for censorship requires a decentralized, adversarial governance body to enact it—the very system already captured. This creates a circular failure mode where the enforcers are the targets.
Evidence: After the Tornado Cash sanctions, over 45% of Ethereum blocks were OFAC-compliant, built by validators proactively censoring transactions. This demonstrates that economic incentives align with regulatory obedience, not network neutrality.
protocol-spotlight
BEYOND THE VALIDATOR BLACKLIST
Architectural Experiments in Censorship-Resistant Staking
Regulatory pressure is weaponizing validator compliance, forcing a redesign of PoS's core assumptions.
01
The Problem: OFAC-Compliant Supermajorities
Concentrated geographic and provider-level compliance creates a single point of failure. A >66% supermajority of Ethereum validators now censors transactions to comply with sanctions, undermining credible neutrality.
- Centralization Vector: Top 3 entities control ~50% of staked ETH.
- Protocol Risk: A compliant supermajority can finalize a chain that excludes arbitrary users.
>66%
Censoring Validators
~50%
Top 3 Entity Control
02
The Solution: Distributed Validator Technology (DVT)
Splits a single validator's key across multiple, geographically distributed nodes. Requires a threshold (e.g., 4-of-7) to sign, making localized compliance impossible.
- Obol Network / SSV Network: Enable fault-tolerant, decentralized staking pools.
- Key Result: No single operator or jurisdiction can censor or halt the validator.
4-of-7
Threshold Signature
99.9%
Target Uptime
03
The Problem: MEV Supply Chain Capture
Block builders and relays, dominated by entities like Flashbots, enforce OFAC filtering. Validators outsourcing block production inherit this censorship.
- Builder Centralization: Top 3 builders produce ~90% of Ethereum blocks.
- Relay Monoculture: Most validators use the same few compliant relays.
~90%
Top Builder Share
1
Dominant Relay
04
The Solution: Permissionless Block Building & Encrypted Mempools
Decouples block building from relay trust. Projects like Shutter Network use threshold encryption to hide transactions until inclusion.
- SUAVE: Aims to create a decentralized block building market.
- Key Result: Validators can build their own blocks or use a diverse set of non-compliant builders without seeing transaction data.
0 ms
Pre-Execution Visibility
100%
Builder Diversity Target
05
The Problem: Liquid Staking Token (LST) Centralization
Censorship resistance fails if the underlying staked asset is controlled by a compliant entity. Lido's stETH represents ~30% of all staked ETH, creating systemic risk.
- Governance Capture: A compliant LST DAO could force validator compliance.
- Secondary Censorship: Exchanges could blacklist the LST token itself.
~30%
Lido Market Share
1
Governance Attack Vector
06
The Solution: Non-Custodial, Lightweight Staking
Enables solo staking without 32 ETH or complex infra. EigenLayer's restaking and Rocket Pool's minipools reduce capital and technical barriers.
- EigenLayer: Allows ~$10B+ in restaked assets to secure new services.
- Rocket Pool: Requires only 8 ETH to run a node with ~6.5% commission.
- Key Result: Radical decentralization of stake, diluting any single entity's influence.
8 ETH
Minipool Deposit
$10B+
Restaked TVL
future-outlook
THE CENSORSHIP TRAP
The Fork in the Road: Utility or Sovereignty?
Proof-of-Stake's reliance on centralized staking services creates a single point of failure for censorship, forcing a choice between network utility and validator sovereignty.
The Staking Centralization Problem is the core vulnerability. Major PoS chains like Ethereum rely on a handful of liquid staking providers (Lido, Rocket Pool) and centralized exchanges (Coinbase, Binance) for the majority of their stake. This creates a single point of censorship pressure for regulators.
Sovereignty requires sacrifice. A truly censorship-resistant validator set must be geographically and jurisdictionally dispersed. This inherently reduces capital efficiency and increases operational overhead, directly conflicting with the goal of maximizing staking yield and network utility.
The protocol must enforce decentralization. Solutions like Distributed Validator Technology (DVT) from Obol and SSV Network, and minimum stake requirements, are not optional features. They are mandatory defenses against regulatory capture of the consensus layer.
Evidence: Post-Merge, over 60% of Ethereum's consensus is influenced by just four entities. Without enforced technical solutions, this concentration will only increase, making censorship a protocol-level guarantee.
takeaways
THE CENSORSHIP ENDGAME
TL;DR for Protocol Architects
Current PoS designs centralize block production, creating a single point of failure for OFAC compliance. This is a protocol-level vulnerability.
01
The MEV-Boost Cartel
Relays enforcing OFAC sanctions control >90% of Ethereum blocks. This creates a centralized choke point for transaction ordering and censorship.\n- Vulnerability: A single legal order can blacklist addresses.\n- Impact: Breaks credible neutrality and liveness guarantees.
>90%
OFAC Blocks
~12s
Finality Risk
02
Enshrined Proposer-Builder Separation (PBS)
Bake PBS into the protocol to cryptographically separate block building from proposing. Removes the trusted relay requirement.\n- Solution: Builders commit to blocks via commits-reveals or VDFs.\n- Benefit: Proposer selects from a permissionless market, breaking relay cartels.
0
Trusted Relays
100%
Permissionless
03
Dual-Staking with EigenLayer
Use restaking to bootstrap decentralized block building networks. AVSs like Espresso or Astria can create competitive, censorship-resistant sequencing layers.\n- Mechanism: Stake ETH to secure a rollup sequencer set.\n- Outcome: Creates economic disincentives for censorship across chains.
$15B+
Secureing AVSs
L2s
Protected
04
Inclusion Lists & crLists
A protocol-level backstop: validators must include transactions from a mempool 'commitment list' if they are valid and fee-paying.\n- Enforcement: Slash validators who skip listed txs.\n- Result: Forces censorship to become economically prohibitive, not just technical.
100%
Tx Guarantee
Slashable
Offense
05
Peer-to-Peer MemPools
Decentralize transaction dissemination with networks like Shutter Network or SUAVE. Encrypt transactions until block inclusion to prevent frontrunning and filtering.\n- Method: Threshold encryption or TEEs for encrypted mempools.\n- Advantage: Relays cannot censor what they cannot see.
0ms
Visibility
P2P
Network
06
The L1 Exit: Sovereign Rollups & Validiums
Move execution to a layer where the base chain only settles proofs, not transaction ordering. Use Celestia, EigenDA, or Bitcoin for data availability.\n- Architecture: Sovereign rollups enforce their own fork choice rule.\n- Result: Censorship resistance is a social/political decision of the rollup community, not inherited from L1 validators.
Sovereign
Fork Choice
DA Layer
Dependency
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall