Ethereum (ETH) Staking Reward Reduction Proposal... 'To 1.1% Annually'

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A proposal has been put forward to reduce Ethereum (ETH) staking rewards from 2.6% to 1.1% annually for 18 months, and to halt new rewards once half of the total supply is staked.

According to crypto news outlet BeInCrypto on August 4 (local time), a draft of EIP-8361, which proposes to gradually reduce Ethereum staking issuance, has been submitted. The draft outlines a structure where a portion of the rewards paid to validators would be burned, with the burn ratio increasing as the amount of staked ETH grows.

Currently, 41.1 million ETH are staked, accounting for 33.7% of the total supply. If EIP-8361 is applied, 56% of staking rewards would be burned at the current point. If the staked amount reaches 60.25 million ETH, all rewards would disappear. Under the existing reward system, the annual yield does not fall below approximately 1.51% even if the entire supply is staked.

BeInCrypto introduced Justin Drake, a researcher at the Ethereum Foundation, as a key figure in this discussion. However, the author of EIP-8361 is a researcher operating under the pseudonym pintail, and related discussions have been ongoing since January 2023. Researchers, including Drake, pointed out the current reward structure as problematic, as it incentivizes holders to continue increasing their staked amounts even if the staking ratio exceeds 50% of the total supply.

Lido, the largest staking provider, holds 9.41 million ETH, accounting for 22.9% of the total staked amount. According to BeInCrypto's calculations, Lido's additional staking revenue would be maintained until the staked amount reaches approximately 49 million ETH. MEV (Maximal Extractable Value) profits, which validators earn by reordering transactions, are also excluded from the burning mechanism, thus retaining an incentive for large operators to expand their scale.

EIP-8361 is still in the draft stage, awaiting editor review, consultation with client development teams, and network upgrade procedures. On the first day of implementation, staking rewards would decrease by 13%. Small individual validators, facing reduced profits while penalties remain unchanged, would require approximately four times longer than currently to recover losses from a few hours of downtime.

[Article Summary]

-A draft of EIP-8361 has been submitted to reduce Ethereum staking rewards from 2.6% to 1.1% annually.

-New rewards will cease once half of the total supply is staked, and the current reward burn rate is 56%.

-If the proposal is implemented, rewards will decrease by 13% on the first day, and the recovery period for losses for small individual validators will also lengthen.

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