Ethereum Staking Rewards Proposal Would Slash Validator Incomes by Half

Six researchers have published a proposal to change Ethereum's staking reward formula. The proposal would progressively burn an increasing share of validator rewards as more ETH is staked, and destroy consensus-layer issuance entirely once 50% of all ETH is staked.

The current staking ratio yields around 2.6%, but the new formula would reduce this to approximately 1.2%. The transition would be phased over 18 months to prevent a sudden wave of validator exits.

The proposal's authors argue that Ethereum's existing reward formula is flawed, as it does not switch off the incentive to stake more ETH even when the network becomes saturated. This leads to an ever-increasing concentration of staked ETH in the hands of custodians and liquid staking protocols.

Liquid staking protocols collectively hold approximately $34.9 billion in staked ETH, with Lido Finance alone holding around $17.6 billion. These large pools would face compression under the new regime, which would also influence where the staking ratio settles under the new system.