Key facts
- Ethereum developers propose EIP-8361, a Tapered Issuance Burn mechanism to reduce validator rewards as staking increases.
- The proposal aims to reach 100% burn rate, cancelling issuance entirely, when 60.25 million ETH is staked.
- Authors argue the current system incentivizes continuous staking, leading to potential dilution and concentration of ETH.
- Critics fear the proposal could harm solo validators, reduce institutional demand, and disrupt DeFi.
- The changes are intended to phase in over approximately two years.
Ethereum developers have submitted a proposal, EIP-8361, to gradually burn validator rewards, aiming to cancel issuance entirely when 60.25 million ETH is staked. The Tapered Issuance Burn mechanism would scale the burn fraction with the staking ratio, reaching 100% at approximately half the total ETH supply. Authors argue this change is necessary to cap staking, prevent excessive dilution for unstaked holders, and counter the concentration of ETH with large custodians and staking providers, which they believe weakens network security.
The proposal suggests that under the current system, yield falls only with the square root of the staking ratio, maintaining a floor near 1.5% regardless of how much ETH is staked. This incentivizes continuous staking. The new mechanism would allow the market to settle where yield meets the risk premium stakers demand, which authors estimate is strictly below 50% staked.
Co-author Jérôme de Tychey highlighted that Ethereum's staking ratio passed a third of supply in April, with the validator entry queue saturated. He projects that without intervention, over 70 million ETH could be staked by January 2028, exceeding 55% of supply, with each month of delay costing approximately 1.5 points of the staking ratio. The proposed changes are designed to phase in over about two years, providing a transition period.
However, the proposal has faced criticism. Isidoros Passadis, Chief of Staking at Lido, described EIP-8361 as too complex and theoretical, warning it could harm network security by pricing out expert node operators and potentially leading to yield-seeking ETH moving to riskier custodial venues. He also noted that issuance changes were slated for a later fork.