Lefteris warns Ethereum funding plan could create staking cartel

Rotki founder and Ethereum developer Lefteris Karapetsas has opposed a new proposal that would fund Ethereum ecosystem work through validator rewards. 

The proposal, called Validator Redirected Revenue, would let validators route part of their staking income toward public goods, infrastructure and core development.

Karapetsas said he had read both the proposal and the response to it before forming his view. He criticized people who argued against versions of the plan that were not in the original post, but said he still opposed the actual mechanism.

Staking cartel risk drives opposition

The proposal would allow validators to redirect between 0% and 10% of staking rewards. If more than half of validators support a non-zero rate, the contribution would apply across the validator set. Validators would also choose preferred recipient addresses, with a splitter contract routing funds to selected projects.

Karapetsas said the design could create “a cartel of the top stakers” able to divert up to 10% of the network’s validator rewards. He argued that the remaining validators could be left funding choices made by the largest staking entities, even if they disagreed with those choices.

Ethereum core development criticism widens debate

Karapetsas also tied his opposition to broader concerns about Ethereum core development. He said he was disappointed with how core development had progressed over the past decade and argued that it had lost contact with protocol users, especially developers who deal with Ethereum’s technical choices.

He said Ethereum has built too much technical complexity and cited RLP, SSZ and RLPx as examples. In his view, a funding squeeze could force consolidation in research and core development. He called that outcome overdue and said he did not want to keep rewarding the same development culture.

Who decides funding remains unresolved

The proposal’s supporters frame the mechanism as a response to Ethereum’s free-rider problem. Many projects benefit from shared tools, security work and public infrastructure, while only a few groups pay for that work directly. The proposal argues that validators benefit from Ethereum’s long-term value and may therefore be natural funders.

As previously reported by crypto.news, the proposal estimated that a 5% to 10% redirect could raise 50,000 to 70,000 ETH each year for ecosystem funding. It also noted concerns over staking operators setting preferences while ETH holders bear the yield reduction.

Karapetsas said that if Ethereum needed a funding mechanism, he would prefer using burned ETH fees rather than a share of validator proceeds. He said that option has its own problems tied to gas use, but viewed it as preferable to the cartel risk.

He also questioned a suggestion for a pre-approved funding list, asking who would decide what appears on that list. The debate remains early because Validator Redirected Revenue is still a research forum proposal, not a live Ethereum rule change.

The next step will depend on whether researchers can answer the governance and incentive questions without weakening confidence among stakers. For now, his argument adds a clear warning: funding reform should not give large stakers too much control over rewards that belong to the wider validator set.