Ethereum Proposal Could Cut Staking Yields by 50%

Ethereum researchers have proposed a rule that could dramatically impact staking yields and the DeFi ecosystem.

The proposal, called 'Tapered Issuance Burn,' would reduce validator rewards to zero once half of ETH's supply is staked. Under current rules, no matter how much ETH gets staked, the reward for staking more never actually falls to zero. The Tapered Issuance Burn rule aims to fix this by burning a growing share of validator rewards as the staking ratio rises.

The change would phase in over about 18 months until issuance hits exactly zero once staked ETH reaches 50% of total supply, which is currently valued at around $112 billion. Currently, Ethereum sits at roughly 29%, and under the proposal's modeling, this would already cut current staking yield from about 2.6% down to around 1.2%. This change is significant because many DeFi protocols rely on these yields.

Aave's founder, Stani Kulechov, has expressed concern that the proposal could make a popular trade in the DeFi ecosystem 'mostly unviable.' The proposal's impact would be felt across liquid staking tokens like Lido's stETH and lending markets from Aave to Pendle.