Ethereum researchers propose EIP-8361 to gradually burn validator rewards, aiming to limit ETH issuance and enhance scarcity.
Draft EIP-8361 aims to eliminate ETH issuance as staking increases.
In a bold move, six prominent Ethereum researchers have introduced a proposal designed to gradually burn a significant portion of validator rewards as the staking ratio rises. The proposal, known as EIP-8361, seeks to achieve a complete burn at around 60.25 million ETH, effectively capping the net issuance of ETH to zero and potentially enhancing its scarcity.
The initiative emerges amid concerns that rising staking yields may lead to an excessive concentration of ETH within large exchanges and staking services, thereby threatening the network’s decentralization and security. Currently, about 41 million ETH is staked, approximately 34% of the total supply, with an additional 2.5 million ETH waiting in the activation queue.
The plan outlines a gradual increase in the burning of rewards, with the burning rate starting at a lower percentage and scaling up to 100% as staking approaches saturation. This adjustment will only affect newly minted ETH, preserving transaction fees and tips for validators. The implementation phase is expected to span about two years, divided into a six-month preparation period followed by an 18-month adjustment phase.
Among the authors of the proposal is Justin Drake from the Ethereum Foundation, who argues that the current staking yields remain appealing. Even if all ETH were staked, yields would still hover around 1.5%, incentivizing further staking. However, Jérôme de Tychey, another author, warns that without intervention, over 70 million ETH could be staked by January 2028, leading to potential security risks if the majority of ETH is held by centralized entities.
Criticism of the proposal has emerged from various corners of the Ethereum community. Aave Labs CEO Stani Kulechov expressed concerns that reducing staking rewards could disrupt existing ETH borrowing strategies, while Mike Silagadze, founder of ether.fi, criticized the proposal's rushed timeline and potential negative impacts on smaller stakers. Silagadze has suggested that the proposal could lead to significant amounts of ETH re-entering circulation, as stakers might be discouraged due to reduced rewards.
The proposal has sparked significant debate among developers and stakeholders, raising questions about its potential inclusion in the upcoming Hegotá upgrade, scheduled for late 2026. This upgrade aims to address various structural issues within the Ethereum network. Given the lack of consensus and the potential ramifications for staking economics, the proposal may be postponed for consideration in a future fork.
