Ethereum Researchers Propose Burning Validator Rewards to Cap Staking Near 50%

Ethereum researchers have proposed a new issuance model that would automatically burn part of validator rewards once the staking ratio rises beyond a certain point.

The Block reported on August 4 that six researchers, including Ethereum Foundation researcher Justin Drake, published a draft Ethereum Improvement Proposal for a “tapered issuance burn” mechanism. Under the proposal, the share of validator rewards that is burned would increase as the total amount of staked Ether climbs.

If 60.25 million ETH, roughly half of Ethereum’s total supply, is staked, the burn rate would reach 100%, effectively reducing net issuance on the consensus layer to zero, according to the proposal. The researchers argued that the current structure guarantees a fixed return regardless of staking size and encourages excessive staking. “As the staking ratio rises, additional staking does not make Ethereum safer and instead increases risk,” the proposal said. It added that if a large share of ETH supply becomes concentrated in custodians and staking service providers, smaller solo stakers could be pushed out of the market.

To minimize market disruption, the burn rate would start at current reward levels and increase gradually over 18 months. The proposal was first posted on GitHub in mid-July, and formal discussion later began on the Ethereum Magicians forum.

Community reaction was mixed. Aave Labs Chief Executive Officer Stani Kulechov said the proposal would not achieve its intended outcome and would cause real harm to Ethereum. If rewards converge to 0%, Ethereum borrowing strategies would become effectively impossible, he wrote, adding that use cases for borrowing Ether and deploying that yield across the DeFi ecosystem could disappear. Others also voiced concern about the negative impact on the broader DeFi ecosystem, including liquid staking tokens such as staked Ether, or stETH.

The proposal also drew support. Zach Pandl, head of research at Grayscale, wrote on X that Ethereum’s yield is paid through inflation and that changes in supply are a core variable directly affecting Ether’s price. He pointed to the potential price support from lower issuance.

The proposal was submitted just before the deadline for non-core EIP submissions for Ethereum’s next upgrade, Hegotá. It also comes about a month after the Ethereum Foundation released a roadmap laying out its development direction for the coming years.