New Ethereum proposal would cut issuance to zero if staked ETH reaches $112 billion

The Proposal's Core Mechanics

The EIP-8361 draft, put forth by six prominent Ethereum researchers including Justin Drake of the Ethereum Foundation, outlines a mechanism to gradually burn an increasing share of validator rewards. This burn would escalate linearly, reaching 100% once approximately 60.25 million ETH is staked, which is roughly half of the total supply. The primary objective is to drive net ETH issuance to zero at this saturation point, thereby limiting further dilution of existing holders and potentially strengthening ETH's long-term scarcity and valuation.

The implementation of this deduction from validator rewards is designed to be slow and phased, taking about 18 months to fully roll out after an initial six-month period for the upgrade to ship, totaling roughly two years for the ecosystem to adjust. It's crucial to note that this proposal specifically targets newly issued ETH from validator rewards, leaving transaction fees and tips earned by validators completely intact. This ensures that validators still receive compensation for their work, albeit with a reduced component from new issuance as staking levels rise.

Addressing Decentralization Concerns

The impetus behind EIP-8361 stems from a perceived problem: the continuous profitability of staking, even at high participation rates. The authors argue that if current trends persist, with projections of over 70 million ETH staked by January 2028, the ever-rising yields incentivize more ETH to be staked. This, in turn, leads to a concentration of staked ETH in large exchanges and staking providers, rather than being held by individual owners. Such centralization, the proposal suggests, could ultimately make Ethereum less secure by undermining its decentralized ethos and squeezing out smaller, individual stakers.

Currently, about 41 million ETH, or close to 34% of the total supply, is staked, with an additional 2.5 million ETH in the activation queue. This places Ethereum approximately 16 percentage points away from the 50% threshold that the proposal identifies as a ceiling for healthy staking. The researchers believe that by capping the profitability of additional stake, the network can mitigate the risks associated with excessive centralization and maintain a more distributed validator set, which is fundamental to Ethereum's security model.

Divided Opinions and Implementation Hurdles

The proposal has ignited a significant debate within the Ethereum community, dividing developers and DeFi participants. Critics, such as Aave Labs CEO Stani Kulechov, argue that moving staking rewards towards zero would render many ETH borrowing strategies unviable, as much of the ETH borrowed on platforms like Aave is used to acquire more staked ETH. Mike Silagadze, founder of liquid staking protocol ether.fi, voiced strong objections, citing concerns about the rushed process and the substance of the change. He contended that the EIP would disproportionately impact solo stakers, pushing them out in favor of large, centralized entities with lower capital costs, and could trigger a capital exodus from major DeFi protocols.

Beyond the substantive disagreements, the proposal faces considerable hurdles for inclusion in Ethereum's next network upgrade, Hegotá, planned for the second half of 2026. The EIP was released just days before the inclusion deadline, with only a preliminary draft implementation and a lack of consensus among the very validators and stakers whose yields it would cut. This combination makes it highly probable that EIP-8361 will miss the Hegotá upgrade and be deferred to a later fork, allowing the staking ratio to continue climbing in the interim, as the authors themselves acknowledge.