Ethereum Draft Proposal Seeks to Halve Staking Rewards

A new Ethereum draft proposal aims to reduce staking rewards by half over an 18-month period, which would see ETH stakers earning around 1.1% per year, down from the current 2.6%. The plan, submitted by researcher Justin Drake and five co-authors, would also switch off the reward once half of all ETH is locked up.

The reason behind this move is to address the issue of concentrated staking power in a few hands, as the total value locked (TVL) in Ethereum staking has grown significantly. The proposal suggests that every few minutes, the network would take a slice of each reward and destroy it, which would increase as more ETH gets staked.

Lido, one of the largest staking operators, is currently holding 9.41 million ETH, or 22.9% of all staked ETH. According to BeInCrypto maths, Lido will continue to gain until about 49 million ETH is staked, nearly 8 million more than today.

The authors acknowledge that validators also earn by ordering transactions, called Maximal Extractable Value (MEV), which would not be affected by the burn. However, they admit that home stakers face a second squeeze as fines stay the same size while earnings shrink.