Ethereum Researchers Pitch Tapered Issuance Burn Mechanism to Curb Excessive Staking

Ethereum researchers have proposed a new issuance model that would automatically burn part of validator rewards once the staking ratio rises beyond a certain point. The proposal, known as 'tapered issuance burn,' suggests increasing the share of rewards burned as more Ether is staked.

The goal of this mechanism is to prevent excessive staking and reduce the risk associated with it. As the researchers argue, additional staking does not make Ethereum safer but instead increases risk. They also point out that if a large share of ETH supply becomes concentrated in custodians and staking service providers, smaller solo stakers could be pushed out of the market.

The proposal suggests starting the burn rate at current reward levels and increasing it gradually over 18 months to minimize market disruption. However, not everyone is convinced that this approach will achieve its intended outcome. Some have expressed concerns about the potential negative impact on the DeFi ecosystem, including liquid staking tokens such as stETH.

Zach Pandl, head of research at Grayscale, has pointed out that Ethereum's yield is paid through inflation and changes in supply directly affect Ether's price. He suggests that lower issuance could provide price support for Ethereum. On the other hand, Aave Labs CEO Stani Kulechov has warned about the potential harm to Ethereum, stating that if rewards converge to 0%, Ethereum borrowing strategies would become effectively impossible.