Author: Bankless
Translator: Deep Tide TechFlow
Deep Tide Guide: The Ethereum staking rate has surpassed 33% and continues to rise. EF researchers have proposed a burning mechanism to limit the staking rate to below 50%. Supporters believe this can prevent staking giants from monopolizing and protect non-staked ETH holders; opponents warn that it could undermine DeFi yield benchmarks and stifle independent stakers. This debate concerns the economic model of Ethereum for the next decade.
The Ethereum community has engaged in intense debates this week around the EIP-8363 proposal.
The concept of "decreasing issuance burning" can be traced back to 2023, when Ethereum Foundation researchers began to publicly express concerns about there being no upper limit on the ETH staking rate. Discussions regarding this topic were held at the Bankless Summit 2024.
Why EIP-8363, and why now?
Under Ethereum's current issuance curve, staking incentives have no stopping point. As more ETH is staked, yields will decline, but researchers indicate that even if nearly 100% of the ETH supply is locked up, yields would only bottom out around 1.5%.
The current Ethereum staking rate has exceeded 33% of the ETH supply, with no signs of slowing down. The issue is that if this trend continues, it will pose two risks:
It could lead to the majority of ETH being concentrated in the hands of a few companies and liquid staking providers, weakening the Ethereum community's ability to resist manipulated validator sets through forks.
Once a certain staking threshold is crossed, issuance essentially becomes a permanent dilution tax on all non-stakers, at which point every ETH holder must choose between joining staking or watching their share diminish.
EIP-8363 was created to address this issue. If implemented, the mechanism would continue to calculate validator rewards as currently done, then burn an increasingly large portion of those rewards. The burning ratio increases with total staking volume, until staking ETH reaches around 50% of the total supply, completely offsetting consensus rewards.
Once this line is crossed, EIP-8363 will allow validators to profit purely from transaction fees and MEV (the additional value gained by block producers through including, excluding, or reordering transactions), rather than from new issuance, until the staking rate falls back below 50%.
Thus, under this model, validators still have incentives, but the minted ETH will be less. The core aim of this model is to control the staking rate and the dilution risk of ETH. Although the intention is good, there have been many critics recently pointing out that the proposal is poorly designed.
The main argument I have seen against it is that EIP-8363 threatens the vitality of DeFi. Staking yields have become the benchmark interest rate for ETH, and on-chain lending, liquid staking tokens, and others are priced based on this. Aave founder Stani Kulechov believes that this proposal would make it difficult for institutional buyers to predict staking yields, potentially killing the rationale for borrowing ETH.
"Ethereum should not be penalized for its growth," he wrote.
I have also seen skeptics argue that EIP-8363 would destroy the viability of independent staking. The key is that the hardware and electricity costs of household stakers do not decrease as yields shrink, so any downturn in net rewards would erode smaller profit margins compared to centralized exchanges that operate thousands of validators.
Moreover, as consensus issuance decreases, MEV occupies a larger share of the remaining income for validators. Critics point out that this dynamic alone can spur centralization effects, as MEV capture rewards scale and precision rather than original issuance.
On the other hand, supporters of EIP-8363 insist that it can enhance ETH's monetary attributes by protecting non-staked ETH from dilution while giving ETH a true supply cap, further solidifying ETH's status as "hard currency."
Supporters also refuted the claim that independent stakers would be more severely impacted, arguing that because burning expands with total staking volume, the critical point where adding more validators is no longer cost-effective would be reached earliest by those who already hold the most shares.
This means household stakers still have the motivation to grow all the way to the 50% threshold, while large stakers do not. In contrast, today's curve design rewards growth regardless of who you are or how much is staked.
That said, I currently see the best discussions about EIP-8363 coming from EF's DeFi expert ivangbi, who today presented a reasonable middle ground in a new (personal and not EF official) post. He believes that the model is theoretically viable and that DeFi can withstand it, but only if "the fixes and arguments are more solid" and not based on "pseudo-economics." It's worth reading in full.
As I understand, today is the deadline for EIP-8363 to achieve PFI status (i.e., "proposed for inclusion," the minimum procedural threshold for Ethereum, meaning "to be included in the agenda for discussion") as part of the Hegotá upgrade. That said, there has been no approval as of now, and Hegotá itself is expected to go live on the mainnet next year.
If EIP-8363 does move forward, there will be a long preparation period regardless, as its arrival would trigger an 18-month transition phase. However, this proposal may stall after this week, with the staking rate continuing its upward trend. We will have to see if this debate resurfaces in the future.
Regardless of the outcome, the larger question is whether Ethereum is currently paying too high a price for security, and if so, is this fix worth the pain of validation? No one has provided a definitive answer yet, so please continue to follow this topic in the coming months.
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