Quick Take
- The “Tapered Issuance Burn” Ethereum Improvement Proposal would gradually burn a rising share of validator rewards as the staking ratio climbs, driving ETH inflation to zero once about 50% of ETH is staked.
- Critics of the proposal, submitted days before a Hegota inclusion deadline, say the plan could negatively impact solo stakers, liquid staking tokens, DeFi yields and Ethereums long-term security.
A group of Ethereum researchers, including Justin Drake, published a draft Ethereum Improvement Proposal that would introduce a “tapered issuance burn,” deducting and permanently destroying a portion of validators “idealized” rewards that scales with the networks overall staking ratio.
The proposal, authored by pintail, Jérôme de Tychey, dapplion, pa7x1, Ladislaus von Daniels and Ethereum Foundation researcher Drake, sets a saturation balance of about 60.25 million ETH — roughly half the current supply — at which the burn fraction reaches 100% and net consensus-layer issuance for performing duties falls to zero.
In other words, a rising portion of each validators rewards would be burned as the total amount of staked ETH grows. At roughly 50% of all ETH staked, the burn would cancel out those rewards completely.
The authors argue that the current system still pays a small yield no matter how much is staked, encouraging more staking. This, in turn, risks overconcentration with big staking providers, like centralized exchanges, and dilutes holders who dont stake.
“Beyond a certain level, additional stake makes Ethereum less secure, not more: the marginal contribution of new stake to economic security falls as the ratio rises, while several risks compound,” the proposal reads. “As an ever-larger share of the ETH supply is held by custodians and staking providers rather than its owners, the social layer is deprived of its ability to hold large operators to account, while solo stakers are forced out.”
The so-called “tapered issuance burn” aims to fix this situation and allow the market to settle below 50% staked on its own. And to soften any immediate impact, rewards would start near todays levels and drop gradually over 18 months.
Community feedback
The proposal was first floated on GitHub in mid-July, and opened for a more formal discussion in the Ethereum Magicians forum on Tuesday. Tychey noted in a comment that a similar proposal was considered in 2024, and that “there is plenty of time to discuss it.”
“Acting now means the market settles into an equilibrium below 50%, but acting after the overshoot means correcting a much larger imbalance, with more stake forced to exit and more disruption for every participant. The gentle path is only available now,” he added.
Commenters in the forum and on X have lodged several criticisms, including concerns that the plan would damage Ethereum‘s long-term staked economic security. Others note that it could hurt “yield-sensitive” stakers, like solo stakers, and limit Ethereum’s DeFi ecosystem due to potential downsides for liquid stake tokens, like stETH, used across the sector.
Aave Labs CEO Stani Kulechov, for one, said the proposal “doesn't achieve the outcome it tries to achieve and is actually hurtful for Ethereum.”
“For DeFi, with moving to 0% reward, this essentially makes ETH borrowing strategies mostly unviable and [kills] ETH borrowing and yield use-cases for ETH (only reason to borrow ETH ironically would be to short it),” Kulechov said.
However, other analysts have responded positively, particularly to the idea that reducing Ethereum‘s inflation could help buoy ETH’s price.
“Unlike other assets, ETH ‘cash flows’ are paid out via inflation. Plus, the yield is very low compared to the asset's volatility. In my view, the reduction in supply is a first-order implication for ETH price,” Grayscale Head of Research Zach Pandl said on X.
ETH issuance has been a controversial topic for years, in part because the network has no fixed cap like Bitcoins 21 million BTC limit and its adjustable monetary policy.
Perhaps the most significant semi-recent change to its system was the EIP-1559 base-fee burn implemented in Ethereums 2021 hardfork, which burns ETH tied to transactions and can even exert deflationary pressure when network demand is high.
Of note, the proposal was submitted days before the non-headliner EIP proposal deadline for Ethereums upcoming Hegotá upgrade. It also comes about a month after the EF published a revised “strawmap” for the next few years of blockchain development, including plans for an “extremely lean” Ethereum.