If Ethereum Staking Exceeds $112 Billion, 'Zero' New Issuance to Be Pursued

▲ Ethereum (ETH)/AI-generated image ©

A proposal has been put forward to burn all newly issued coins as validator rewards if Ethereum (ETH) staking volume reaches half of the total supply. Contrary to expectations that this could increase long-term scarcity, there is strong opposition, fearing it could lead to the exodus of individual stakers and the outflow of decentralized finance (DeFi) funds.

According to investment media FXStreet on August 5 (local time), Ethereum researchers and developers have unveiled a proposal to gradually increase the burn rate of validator rewards as staking volume grows. If approximately 60.25 million Ethereum, worth about $112 billion at current value, is staked, the burn rate will reach 100%, resulting in zero net new issuance. This accounts for about 50% of the total supply.

If the proposal is implemented, a portion of the validator rewards will be deducted and permanently burned during each epoch, which ends every 6.4 minutes. The burn rate will increase linearly up to the staking saturation point, and validators will continue to receive transaction fees and tips earned during the block creation process. The proposed change is designed to have a total adaptation period of approximately two years, including an upgrade preparation period of about six months and a phased implementation over 18 months.

Currently, about 41 million Ethereum is staked, which is approximately 34% of the total supply. An additional 2.5 million are in the activation queue, taking more than six weeks to enter, but there are no withdrawal requests pending. The daily activation volume is approximately 57,600 units. Co-proposer Jérôme de Tychey expects the staking volume to exceed 70 million units by January 2028 if the current system is maintained.

Proponents argue that if staking increases excessively, the volume could become concentrated in exchanges and large staking operators, pushing out individual stakers and thereby weakening network security. On the other hand, Stani Kulechov, CEO of Aave Labs, pointed out that if rewards approach zero, the strategy of borrowing Ethereum to purchase additional staking assets could become virtually impossible.

Mike Silagadze, founder of ether.fi, criticized both the process and content, stating that the public comment period for a significant monetary policy change was only 48 hours. He argued that reducing rewards would drive out individual stakers and empower large centralized operators, while also potentially pushing tens of billions of dollars worth of Ethereum back into the circulating market. The proposal was submitted for consideration in the next Hegotá upgrade, which closes on August 6, but it was assessed that due to the draft being only about 300 lines long and lacking consensus among validators and stakers, it is more likely to be postponed to a subsequent fork rather than this upgrade.

*Disclaimer: This article is for investment reference only, and we are not responsible for investment losses based on it. The content should be interpreted for informational purposes only.*