Ethereum Validators Face Zero Rewards in Tapered Issuance Burn Proposal

A proposal to reduce Ethereum validator rewards to zero has sparked debate among developers and DeFi builders. EIP-8363, also known as Tapered Issuance Burn, was published in August and aimed to burn a growing fraction of validator rewards as the percentage of ETH staked rises.

The proposed mechanism would activate gradually over approximately 18 months, bringing the net issuance of the consensus layer to zero when the staking ratio reaches 50%. Currently, around 41.9 million ETH, 34.7% of the total supply, are staked, with consensus yields close to 2.6%.

DeFi builders Stani Kulechov and Mike Silagadze argued that the staking yield functions as the risk-free rate of the on-chain ecosystem, equivalent to the Treasury bill rate in traditional finance. They warned that eliminating the base staking yield would affect seven of the ten largest DeFi protocols and lead to an accelerated consolidation among large-scale liquid staking token providers.

The proposal did not pass the first formal stage of the network upgrade process and received no support from any client team. Its authors project that more than 55% of the supply could be staked by 2028, implying paying increasingly more for security the network no longer needs at that scale.