Proof of Stake Changed Ethereum Governance Pressure

Liquid staking derivatives (LSDs) like Lido and Rocket Pool now control ~35% of all staked ETH, creating a centralization risk. The protocol's neutrality is pressured by staker cartels who can influence social consensus and censorship resistance.

• Key Risk: Recreating the 'too big to fail' problem from TradFi.
• Key Tension: Maximizing yield vs. upholding credibly neutral base layer principles.

Post-merge, validators (stakers) select block builders. This created a proposer-builder separation (PBS) market where builders like Flashbots and bloXroute compete on MEV extraction efficiency. The pressure is to maximize profit, often at the expense of user transaction performance.

• Key Metric: >90% of blocks are built by centralized builders.
• Key Tension: Chain efficiency vs. fair and transparent transaction ordering.

Ethereum's core protocol response is to enshrine PBS, formally separating the block proposal role from the block building role. This aims to neutralize staker/BEV pressure by making the builder market permissionless and contestable at the protocol level.

• Key Benefit: Reduces staker centralization pressure from MEV.
• Key Benefit: Creates a credibly neutral auction for block space, protecting users.

Users now face a hidden tax. To avoid OFAC-sanctioned, MEV-extracting builders, they must use privacy tools like Flashbots Protect or CowSwap. This adds cost and complexity, pushing the burden of censorship resistance onto the end-user.

• Key Pressure: Rising base costs for credible neutrality.
• Key Tension: Simple UX vs. guaranteed ethical inclusion.

Initiatives like Flashbots' SUAVE aim to decentralize the builder role itself. It's a specialized chain for preference expression and block building, creating a competitive market to break the oligopoly. This addresses pressure from both stakers and centralized builders.

• Key Benefit: Democratizes access to MEV profits.
• Key Benefit: Increases chain resilience and neutrality by diversifying builder set.

EigenLayer's restaking model creates a new pressure vector by allowing staked ETH to secure other protocols (AVSs). This concentrates systemic risk but also creates a market for decentralized validation services, potentially redistributing power from monolithic staking pools.

• Key Pressure: $15B+ TVL creates new 'too big to fail' entity.
• Key Tension: Innovation in pooled security vs. compounding Ethereum's tail risk.

Proposer-Builder Separation (PBS) via MEV-Boost created a powerful, centralized builder market. Governance is now about controlling the block-building supply chain, not just consensus.

• Key Risk: Top 3 builders control ~80% of blocks, creating censorship and centralization risks.
• Strategic Imperative: Builders must compete on latency (<500ms) and MEV extraction efficiency to win auctions.

Liquid staking dominance (over 30% of staked ETH) creates a systemic governance risk. The DAO's LDO token holders, not its stakers, control protocol upgrades and treasury.

• Problem: A single entity can sway validator set decisions, threatening chain neutrality.
• Solution for Builders: Design for validator set decentralization; integrate with multiple LSTs like Rocket Pool, Frax Ether, and StakeWise.

PoS replaced hash rate with economic stake as the governance weapon. Malicious proposals can now be countered by threatening validators with slashing penalties.

• New Dynamic: Governance attacks are financialized; defending the chain requires coordinating a ~$100B+ staked economy.
• Builder Action: Protocol upgrades must model slashing risk scenarios and ensure client diversity to avoid correlated failures.

Geth's dominance (~85% client share) is PoS's greatest existential threat. A bug could slash a majority of the network simultaneously.

• Problem: Governance pressure failed to decentralize client usage, creating a single point of failure.
• Solution: Strategists must mandate multi-client infrastructure and incentivize validators to run minority clients like Nethermind, Besu, or Erigon.

EigenLayer and other restaking protocols allow validators to rehypothecate security. This creates powerful, vertically integrated cartels that control both consensus and AVS (Actively Validated Services) slashing.

• New Power Dynamic: A restaking operator's governance influence extends across multiple protocols, from EigenDA to Omni Network.
• Strategic Play: Build AVSs that attract decentralized operator sets to avoid capture by a single cartel.

The ultimate strategic response to PoS governance pressure is to remove governance entirely. Protocols like Uniswap V4, with its immutable core and hook architecture, reduce attack surfaces.

• Builder Thesis: Design systems where critical parameters are hardcoded or trustlessly automated.
• Example: Use CowSwap's batch auctions or UniswapX's fillers to decentralize execution, removing governance from the transaction flow.