Ethereum Staking Proposal Aims to 'Limit Dilution' with 100% Reward Burn

A proposal aimed at reducing validator reward payouts as more Ethereum (ETH) is staked has been put forward by six Ethereum researchers. The draft, known as EIP-8361, proposes increasing the ETH validator reward burn to 100% when staking reaches half of supply, effectively eliminating net issuance.

Supporters argue that this change would limit dilution for existing holders and reinforce ETH scarcity over the long term by pushing net issuance to zero once staking reaches its saturation point. They also claim it would make additional staking less profitable over time.

However, not everyone agrees with the proposal. Stani Kulechov, CEO of Aave Labs, has warned that moving staking rewards toward zero would make ETH borrowing strategies mostly unviable. He argues that much of the ETH borrowed on Aave is used to buy more staked ETH, a trade that depends on staking returns staying above borrowing costs.

The proposal also raises concerns about the impact on lending, leverage, and token circulation strategies built around staking yield. As it stands, staking underpins Ethereum's security model, with holders locking up ETH to validate transactions in return for newly created tokens.