Ethereum Proposal Would Burn Staking Rewards to Zero if Half of ETH Is Staked

EIP-8361, a tapered issuance burn, sets a fixed saturation balance of 60.25 million ETH, roughly half the supply at the time of the fork. The burn fraction scales with the staking ratio raised to the power of 1.5, hitting 100% at that balance, at which point a validator performing its duties perfectly earns zero net consensus yield. The change touches only the consensus layer, and Prysm has a draft implementation running to about 300 lines.

Under the current curve, yield falls only with the square root of the staking ratio and keeps a floor near 1.5% however much ETH is staked, so stake flows in for as long as that floor clears the risk premium stakers demand. Removing it lets the market settle where yield meets that premium, which the authors argue is strictly below 50%.

Around 33% of ETH is staked now, paying roughly 2.6%. Imposed at once the burn would cut that to 1.2%, so it phases in over an 18-month transition that temporarily doubles the base reward factor before decaying it back, which with fork lead time gives about two years to adjust. The taper's shape applies from the first epoch after activation. Issuance would peak near a 20% ratio at about 0.5% of supply a year, then fall to zero at 50%.

The draft argues that stake beyond a certain level reduces security, concentrating supply with custodians and staking providers, weakening the credibility of social slashing and forcing out solo stakers, who pay income tax on nominal yield. It also holds that dilution taxes unstaked holders and lets liquid staking tokens displace raw ETH as the ecosystem's working money.

Large operators are hit directly. Because issuance would fall past its peak, an operator that keeps growing claims a bigger share of a shrinking pot, and one holding half the stake would find growth stops paying once about 31% of supply is staked.

Passadis warned the curve could produce a sustained equilibrium near 50% staked with zero nominal yield, which he called "a death-knell for the security of the network," as operators prioritising expertise and decentralization are priced out by large, minimal-cost parties able to run at break-even. Capping staking only displaces the too-big-to-fail problem, he said, since yield-seeking ETH moves to riskier custodial venues.

Consensus issuance accounts for at least 93% of staking yield today, according to the proposal, which remains subject to the EIP inclusion process.