Key facts
- Ethereum developers submitted EIP-8361, a proposal for a tapered issuance burn mechanism.
- The proposal aims to gradually reduce validator rewards as more ETH enters staking.
- The burn rate would increase with the staking ratio, reaching 100% when approximately 50% of ETH supply is staked.
- A transition period of 18 months is included before the new reward curve is fully implemented.
- Annual issuance would peak at 0.5% of ETH supply when staking reaches 20%, declining to zero as staking approaches 50%.
Ethereum developers have put forth a new proposal, EIP-8361, designed to adjust validator rewards based on the network's staking ratio. The core of the proposal, termed Tapered Issuance Burn, involves burning a portion of the rewards earned by validators for their participation in block proposals, attestations, and sync committee duties.
The burn rate would dynamically increase as more Ether is staked. The mechanism is intended to reach a 100% burn rate when approximately 60.25 million ETH, representing about half of the current supply, is actively staked. This would lead to a gradual decline in validator yields as staking grows, rather than maintaining a fixed minimum yield.
Authors of the proposal noted that the current system offers a yield of around 1.5% even with high staking ratios, lacking a natural endpoint for encouraging further staking. The EIP-8361 aims to address this by creating a system where issuance incentivizes staking up to a certain threshold.
A phased approach is suggested, including an 18-month transition period. During this phase, Ethereum's base reward factor would initially increase from 64 to 128 before gradually reverting to its current level, ensuring validator yields remain stable before the new model is fully implemented. The revised reward curve would take effect on activation day, with annual issuance peaking at approximately 0.5% of the ETH supply when staking reaches about 20%, and subsequently declining to zero as staking approaches the 50% target.
Ethereum's staking ratio has already surpassed one-third of its total supply. Projections indicate that if current demand persists, over 70 million ETH could be staked by January 2028.