Ethereum researchers propose burning staking rewards to curb excessive staking incentives, facing criticism from community members.
A new proposal from a group of Ethereum researchers seeks to modify the network's reward system by introducing a mechanism to burn a portion of staking rewards for validators. Termed EIP-8363, the initiative is led by prominent figures including Jerome de Tychey, a member of the Lodestar Dapplion team, and Ethereum Foundation researcher Justin Drake.
The proposal outlines that as the total amount of ETH staked approaches 60.25 million, which is about half of the total ETH supply, the network will begin to burn up to 100% of the rewards earned by validators from various activities such as attestations and block proposals. This gradual implementation is expected to unfold over the next 18 months.
Proponents argue that the current issuance model fails to adequately reduce the incentives for staking, even when a significant portion of ETH is locked. According to the authors, yields remain around 1.5% annually, regardless of the amount staked. De Tychey emphasized that the incentive for staking persists indefinitely, raising questions about its long-term sustainability.
“The incentive for staking is never turned off. Where will it stop? Nowhere,” he stated.
The authors express concerns that unchecked staking growth could lead to an unhealthy concentration of ETH among large custodians and exchanges, potentially pushing regular ETH out of decentralized finance (DeFi) ecosystems in favor of tokens with associated risks.
“Constantly increasing issuance is a dilution tax for every holder: stake or be diluted,” de Tychey noted.
Reactions to the Proposal
However, the proposal has met with significant opposition from various members of the Ethereum community, including developers and DeFi project founders. Critics warn that reducing rewards could harm solo validators, diminish institutional interest in ETH, and adversely impact staking yield markets.
Stani Kulechov, founder of Aave, expressed concerns that the proposal may weaken institutional demand and borrowing activities in DeFi, stating, “this proposal doesn't achieve the goal it aims for and is actually harmful to Ethereum.”
“It caps Ethereum staking rewards to 0% when over 50% of supply staked,”
he added, emphasizing the unpredictability this could introduce.
Mike Silagadze, head of Ether.Fi, criticized the proposal for its potential negative impact on solo stakers, who typically incur higher relative costs. He described the last-minute release of the proposal as disappointing, highlighting the lack of adequate time for community feedback on such a significant change to network economics.
“This is detrimental to decentralization, adoption of Ethereum, and the reputation of a network that implements changes in this manner,” Silagadze argued.
While de Tychey acknowledged the concerns raised, he believes that the proposal is necessary to address the risks posed by large staking providers. Currently, EIP-8363 remains in draft form and has not yet been approved or scheduled for implementation in any upcoming upgrades, prompting ongoing discussions within the community.
