Ethereum's Issuance Policy Takes Center Stage as Staking 'Subsidies' Come Under Fire

The Ethereum Improvement Proposal (EIP) 8363 aims to cut staking 'subsidies' by burning a portion of validator rewards, reaching 100% burn when 50% of the supply is staked. The proposal's impact on issuance, yields, and staking equilibrium has been modeled using on-chain data and the original EIP text.

The model shows that at current staking levels, the proposal cuts issuance in half rather than to zero. Additionally, it is self-limiting: under any reasonable staker hurdle rate, the system ultimately stabilizes at 26-34% of supply staked with issuance of 0.3-0.5%/year.

The yield reduction imposed by EIP-8363 shows no detectable relationship with the price of ETH. The burn mechanism is no longer effective, as evidenced by the decline in fee burning since the introduction of EIP-1559. In 2022, EIP-1559 burned 1.48 million ETH, but this has decreased to just 14,300 ETH annually.

The L2 migration and blob scaling moved the fee base off L1, resulting in a price effect rather than a demand effect. The average base fee fell from 4.00 gwei to 0.17 gwei, while L1 gas usage doubled over the same period.