Digesting a monetary revolution in two days, there is no standard answer to this question.
Written by: Cathy, Popular Blockchain
On August 4th, a bomb related to Ethereum quietly appeared on the forum.
Justin Drake, along with five core developers, submitted a proposal named EIP-8363: when the staking rate reaches 50%, the protocol will stop issuing new rewards to validators. All consensus layer rewards will be burned.
48 hours later marks the deadline for the all-core developer meeting to finalize the Hegotá upgrade candidate proposal.
The entire ecosystem has only two days to digest this monumental change in monetary policy. The forum instantly erupted, with core members from Aave, Lido, and ether.fi collectively responding.
01 What exactly does this proposal aim to burn?
Currently, over 40 million ETH are participating in staking, accounting for 33% of the total supply, with a net inflow of 1.75 million per month. The rise of liquid staking tokens, the maturity of institutional staking infrastructure, and the compliance of spot ETFs, together have tightened the spring for staking growth.
The problem is that the current issuance curve has no brakes. Even if all the ETH in the world were staked, the base yield for validators would still be 1.5%. As long as someone believes this yield can cover the risks, the total amount staked will expand infinitely.
Justin Drake thinks 30 million is enough to defend the network, while Vitalik even thinks 15 million would suffice. Currently, at 40 million, it’s at least doubled.
The solution of EIP-8363 is an increasing burn curve: the higher the staking amount, the larger the proportion of rewards that are burned. At a 50% staking rate, it will all be burned, resulting in zero net yield. After that, validators can only survive on transaction priority fees and MEV.
The proposal does not intend to stop at 50%. Validators will still have to bear hardware costs, risk of penalties, and liquidity lockup, and the market will demand a positive premium, thereby naturally bringing the equilibrium point down to a lower position.
In plain terms, this is a self-tightening faucet.
02 Intended to prevent centralization, the first to die will be independent stakers
The consensus layer issuance accounts for 93% of the total income of validators. Cutting this piece treats all nodes equally in theory, but in reality, it precisely strikes at small capitals.
The cost of running a node is rigid: hardware, bandwidth, electricity, maintenance time. Large service providers spread these costs across tens of thousands of validators, making marginal costs approach zero. Independent stakers must bear all expenses with 32 ETH per node.
Currently, independent stakers only account for 5.4% of the total staking amount on the network and are shrinking year by year. The comprehensive income has dropped from 2.86% to 1.48%, nearly halving, and they will definitely be the first to fall below the breakeven line. The last batch of practitioners of Ethereum's spirit of decentralization will be physically erased from an economic standpoint.
Opponents have modeled out a more ironic future: on-chain LST users are highly sensitive to returns and will flee as soon as returns drop. However, exchanges like Coinbase have extremely low operating costs and are tied to a large number of ETF clients who are insensitive to yields. Four years from now, Coinbase could independently control over 33% of the network’s staked amount. The centralization the proposal aims to prevent is instead accelerating.
An even more insidious threat comes from MEV.
As consensus issuance is reduced, MEV's weight in total revenue is passively amplified. Model calculations show that when the staking amount reaches 48 million, MEV's proportion skyrockets from 7% to 19%; at 54 million, it approaches 30%.
MEV distribution is extremely uneven. Independent nodes might remain empty-handed for months, while large mining pools smoothly manage the variance due to their base of validators.
Currently, most MEV-Boost relays on the market follow the OFAC sanctions list and exhibit censorship tendencies. When basic yields are abundant, nodes have the confidence to stick with neutral relays, sacrificing some profit for the ideal of decentralization.
But when MEV becomes a matter of survival, choosing censoring relays is no longer a moral choice but rather a business survival rule.
The proposal aims to maintain network neutrality, but it significantly raises the financial threshold for maintaining neutrality. It is counterproductive.
There is also a tax trap. The transitional design is "first double the on-paper rewards and then burn half." In the U.S., the U.K., and Germany, staking rewards count as taxable income upon receipt. The taxable base for validators will double, and the net yield will actually decrease. Aave founder Stani Kulechov directly pointed out: this is pushing compliant family nodes out of the protocol layer.
03 The foundation of DeFi Lego is becoming unstable
The Ethereum staking yield is seen as the "risk-free benchmark interest rate" for all of DeFi. All lending protocols, liquidity pool strategies, and interest-bearing asset pricing are strictly anchored to this benchmark. With the cornerstone removed, the entire Lego tower will be re-evaluated.
LST protocols hold assets worth over $42 billion, relying on extracting 10% of staking rewards to maintain operations. If yields are halved, protocol revenue will be harshly cut in half, significantly reducing the ability to reinvest in security audits and infrastructure maintenance. Once investors determine that a 1% yield cannot compensate for smart contract and de-pegging risks, massive capital will sell off LST for native ETH, triggering a discount spiral.
A more direct impact will occur in leveraged cycles. Many institutions use Aave for leveraged cycles: deposit stETH, borrow WETH, and then convert it back to stETH for deposit. Under E-Mode, leverage can exceed 10 times.
The premise of this strategy is that staking yields must be higher than borrowing rates. Basic yields have dropped from 2.6% to 1.2%, while borrowing rates temporarily stay at 1.5%. The interest spread has flipped from a positive 1.1 percentage points to a negative 0.3 percentage points.
The money printer has turned into a daily loss machine.
Collective deleveraging means massive sell-offs of stETH. Liquidity pools will dry up, collateral values will shrink and breach the liquidation threshold, leading to a cascading liquidation waterfall. The scene of stETH seriously de-pegging when Terra collapsed in 2022 might reoccur.
04 Solana is waiting nearby
If ETH's on-chain yield is pushed towards zero while stablecoin yields remain at 4% to 5%, rational actions would be: use ETH as collateral to borrow and buy high-yield stablecoins. ETH would turn into the yen of the zero interest rate era, specifically used for borrowing.
Meanwhile, Solana's native staking yield exceeds 5%, and the Alpenglow upgrade plan compresses block finality from 12.8 seconds to about 150 milliseconds. Wall Street is already applying for Solana ETFs that offer staking dividends.
Ethereum has attracted over tens of billions of institutional funds through ETFs. These funds are interested in predictable and continuous cash flows, which Wall Street has dubbed "internet bonds." EIP-8363 uses a mechanism not controlled by holders to bring this "coupon" to zero. No institution is willing to underwrite a financial instrument whose "coupon can be extinguished by the actions of others at any time."
To achieve an annual reduction of about $1 billion in issuance, the cost could be the evaporation of hundreds of billions in institutional net inflows.
Aave DAO representative Marc Zeller publicly called for a coalition between Lido, Aave, and ether.fi, threatening to "directly reject EIP-8363" if necessary. EIP-8148 author Greg Koumoutsos questioned whether they plan to shove the proposal into the upgrade within less than a 48-hour feedback window? Idealistic researchers and builders bearing tens of billions in real money are colliding head-on at Ethereum's governance table.
Ethereum indeed needs a staking brake mechanism. But without a comprehensive plan to address LST de-pegging, capital loss from institutions, and validator centralization, the harm caused by an abrupt stop may far exceed the problems it aims to solve.
Digesting a monetary revolution in two days. There is no standard answer to this question.
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