A group of Ethereum researchers, including Justin Drake, has proposed a draft Ethereum Improvement Proposal (EIP) introducing “tapered issuance burn” to gradually reduce and permanently destroy a portion of validators’ staking rewards. The mechanism aims to curb overconcentration of staking power and encourage the market to settle below 50% staked, though it faces criticism for potential impacts on DeFi and staking incentives.
The proposal, first floated on GitHub in mid-July, sparked formal discussion on Ethereum Magician’s forum on Tuesday. It was submitted days before the deadline for EIP proposals under Ethereum’s Hegotá upgrade, with the Ethereum Foundation’s revised “strawmap” for blockchain development published a month earlier.
The mechanism, outlined in a draft EIP, would see staking rewards gradually reduced and permanently destroyed based on the network’s staking ratio. At a saturation balance of ~60.25 million ETH—half the current supply—the burn fraction would reach 100%, while at ~50% staked, the burn would cancel out validator rewards. Rewards would start at current levels and decrease over 18 months, differing from EIP-1559’s previous base-fee burn model.
Justin Drake, an Ethereum Foundation researcher, and Jérôme de Tychey, a co-author, noted the proposal had been considered as early as 2024. However, critics like Stani Kulechov, CEO of Aave Labs, warned that the plan could render ETH borrowing strategies largely unviable, while Zach Pandl of Grayscale supported the potential to reduce ETH supply.
Researchers argued that beyond a certain staking threshold, additional stake would diminish Ethereum’s economic security, as marginal contributions to security decline while risks compound. Kulechov contended that the proposal would “kill” ETH borrowing and yield use-cases, while Pandl suggested the supply reduction could have a “first-order implication” for ETH’s price.
The proposal’s impact on Ethereum’s economic security and DeFi ecosystems remains debated. Community feedback highlights concerns over harming yield-sensitive stakers and liquid stake tokens such as stETH. Its implementation and long-term effects continue to be discussed within the Ethereum community.
Written by Sarah Whitmore
Ethereum Desk
