Liquid, Obol Report: What are the risks of Pectra upgrade?

Author: Josh O'Sullivan, CoinTelegraph; Compiler: Wuzhu, Golden Finance

As Ethereum prepares for its Pectra upgrade in early 2025, a recent research report from Liquid Collective and Obol reveals a variety of associated risks.

The report highlights the importance of client, operator, and cloud diversity, as well as concerns about limited adoption of distributed validator technology (DVT).

"Our latest report with Obol highlights the growing importance of addressing Ethereum staking-related risks and protocol-level penalties," said Matt Leisinger, chief product officer at Alluvial, the software development company that supports Liquid Collective, in an interview.

Client and Operator Risks

Regarding consensus and execution clients, the report warns that "significant errors in major clients" could lead to "significant slashing penalties and network instability."

As a fundamental element of Ethereum’s consensus mechanism, staking through a single node operator may expose the staked assets to downtime and slashing risks.

Regarding staking, the report warns that “Operator diversity is critical to maintaining network health and avoiding single points of failure.”

Leisinger reinforces this statement in the report, stating: “Each staker and service provider must rigorously evaluate relevance, diversity, and risk mitigation measures to prevent potential risks, even from trusted node operators.”

The report also Critically discusses the need for a wide geographical distribution of validators and cloud providers,citing “recent outages such as those at Hetzner and AWS”.

It explains that DVT can significantly support this strategy, by “enhancing validator resiliency by reducing associated risks”.

Geographic map of Ethereum validators supporting the Proof-of-Stake consensus mechanism.

Leisinger added:

“To achieve long-term resilience and institutional adoption, staking configurations must prioritize diversity among node operators and validators.”

Pectra Upgrade

The upcoming Ethereum Pectra upgrade combines the Prague and Electra upgrades, which focused on changes to the network execution and consensus layers, respectively.

Petra is expected to go live in the first quarter of 2025 and includes Ethereum Improvement Proposal (EIP)-7251.

According to the report, “The Pectra upgrade will allow staking providers to consolidate their stakes across fewer validators by increasing the maximum effective balance to 2,048 ETH.”

The change in staking limits will reduce the number of validators required and relieve pressure on Ethereum’s communication layer.