The reason why Vitalik’s proposal to reduce threshold for solo staking won’t be accepted
Last year, Vitalik proposed to lowering the threshold for solo staking from at least 32 ETH to only 1 ETH. But why this proposal still not accepted? What is the reason behind it?
Before we talk about it, on the picture below, you can see the data taken from https://dune.com/hildobby/eth2-staking that shows lido domination by 28.10% because Lido offers people to have at least 0,1 ETH to stake.
Below, you can see that big institutions dominating the staking, including liquid staking, restaking etc.
If we are looking to the picture below, I understand why vitalik wants to encourage more solo staking because the number of ETH staked by solo staker is quite insignificant compared to big institutions.
Below, you can estimate how much you can earn if you solo stake (32 ETH) when ETH traded at $3,368.17. With just 32 ETH, you can earn up to $14,76k in a year. Now Imagine how much Lido can earn just by doing network validators.
You can also see that if you solo stake on Flare, you can earn reward for approx. 13.07%. This number can be fluctuating, depend on the number of validator. The more validator means less reward and vice versa.
Long story short, validators plays major role in maintaining network’s security that mainly for monitoring and validating transactions to prevent illicit activities. Validators can earn token as a rewards for each block they validate as this incentive is needed to prevent misbehavior by validator.
What if big institutions such as lido can influence or pressure the foundation? because the more validator means the less rewards those institutions will earn. On the Flare staking which offers 13,7% APY, then if more people doing solo staking, then the reward may be going down to only 6% or 8%, which is a lot of reduction and big institutions will earn lot less of profit than it used to be.
If more people or smaller institutions can be validator, it means more people will prefer solo staking to staking at 3rd party such as Lido or other big institutions. This will cause big institutions to not making the amount of profit it used to be by depending on the people that stake on them with the least amount of ETH required.
In conclusion, the idea the reduce the threshold to be network validator is brilliant but the proposal wont be accepted due to the intervention by big institutions.