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Vitalik Buterin unveils plan to curb block builder centralization

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Vitalik Buterin to spend $43 million on Ethereum development

Vitalik Buterin is turning his attention to a part of Ethereum most users never think about but that has quietly become one of its biggest pressure points: who gets to decide what transactions goes into a block.

In a new blog post on Monday, the Ethereum co-founder lays out a series of ideas aimed at preventing block building, the process of assembling transactions before they’re finalized onchain, from becoming too centralized.

While Ethereum’s upcoming “Glamsterdam” upgrade will formalize proposer-builder separation, which will allow validators to outsource block construction to a competitive market, Buterin argues that simply creating a marketplace of builders doesn’t solve everything. If a small number of builders dominate, they could still censor transactions or extract outsized profits from users.

One proposal, known as FOCIL, would act as a kind of anti-censorship backstop. Under the design, a small group of randomly selected participants would each choose transactions that must be included in the next block. If those transactions are missing, the block would be rejected. The idea is that even if a single hostile builder controlled the entire market, they couldn’t permanently exclude specific users.

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Another focus of his post is so-called “toxic MEV,” where traders exploit visibility into pending transactions to front-run or “sandwich” users’ trades. One potential fix is encrypting transactions until they are finalized, preventing opportunistic actors from seeing them in advance.

Buterin also points to risks at the networking layer, where transactions can be observed by intermediaries before they even reach a block, suggesting that anonymized routing systems could become an important line of defense.

Longer term, he sketches out a vision of more distributed block building, where not every transaction requires full global coordination. Much of Ethereum’s activity, he argues, may not need to be processed in a single, tightly ordered bundle, opening the door to designs that reduce central chokepoints.

Overall Buterin seems to focus on as Ethereum scales, decentralization challenges are shifting from validators to the infrastructure that decides what users’ transactions actually make it onchain.

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Read more: Vitalik Buterin reveals his bold new plan to fix Ethereum’s scaling problem

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Crypto World

Aave’s TVL Falls $8B After $293M Kelp DAO Hack

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Aave’s TVL Falls $8B After $293M Kelp DAO Hack

Total value locked on decentralized lending protocol Aave dropped by nearly $8 billion over the weekend after hackers behind the $293 million Kelp DAO exploit borrowed funds on Aave, leaving roughly $195 million in “bad debt” on the protocol and triggering withdrawals.

Data from DeFiLlama shows that Aave’s TVL fell from about $26.4 billion to $18.6 billion by Sunday, losing the top spot as the largest DeFi protocol. 

Aave v3’s lending pools for USDt (USDT) and USDC (USDC) are now at 100% utilization, meaning that more than $5.1 billion worth of stablecoins cannot be withdrawn until new liquidity arrives or borrows are repaid. 

$2,540 is available to be withdrawn from the $2.87 billion USDT pool on Aave v3 at the time of writing. Source: Aave

Aave’s TVL fall shows how rapidly risk from a single security incident can spread throughout the broader, interconnected DeFi lending market, potentially leading to a severe liquidity crisis.

The incident began on Saturday when hackers stole 116,500 Kelp DAO Restaked ETH (rsETH) tokens worth about $293 million from Kelp DAO’s LayerZero-powered bridge and used them as collateral on Aave v3 to borrow wrapped Ether (wETH).

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Crypto analytics platform Lookonchain said the move created about $195 million in “bad debt” on Aave, which contributed to the Aave (AAVE) token tanking nearly 20% from $112 on Saturday at 6:00 pm UTC to $89.5 about 25 hours later. 

Lookonchain noted that some of the largest crypto whales to withdraw funds from Aave were the MEXC crypto exchange and Abraxas Capital at $431 million and $392 million, respectively.

Source: Grvt

Several crypto networks and protocols tied to rsETH or the LayerZero bridge have paused use of the bridge until the problem is resolved, including DeFi platform Curve Finance, stablecoin issuer Ethena and BitGo’s Wrapped Bitcoin (WBTC).

Aave has frozen several rsETH, wETH markets

Shortly after the Kelp DAO exploit, Aave said it froze the rsETH markets on both Aave v3 and v4 to prevent any suspicious borrowing and later stated that rsETH on Ethereum mainnet remains fully backed by underlying assets.

WETH reserves also remain frozen on Ethereum, Arbitrum, Base, Mantle and Linea, Aave said.

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This incident marks the first significant stress test of Aave’s “Umbrella” security model, which was introduced in June 2025 to provide automated protection against protocol bad debt while enabling users to earn rewards.

Related: Aave DAO backs V4 mainnet plan in near-unanimous vote

Earlier this month, the Bank of Canada found that Aave avoided bad debt in its v3 market by using overcollateralization, automated liquidations and other strategies that shifted risk to borrowers.

In comments to Cointelegraph, Aave defended its liquidation-based model, framing it as a core safety mechanism that protects lenders while limiting downside for borrowers.

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It comes as Aave parted ways with its longest-standing DeFi risk service provider, Chaos Labs, on April 6, following disagreements over the direction of Aave v4 and budget constraints.

Magazine: Are DeFi devs liable for the illegal activity of others on their platforms?