Ethereum developers have proposed gradually burning validator issuance, with a full burn set to take effect once about half of the ETH supply is staked.

Aave founder Stani Kulechov warned that the proposal could weaken staking incentives, institutional demand, and Ethereum DeFi strategies.

The draft proposal arrived before the Hegotá deadline, prompting debate over Ethereum's long-term staking economics and network security.

Ethereum developers have proposed a draft Ethereum Improvement Proposal that would gradually burn validator issuance as network staking increases, reaching a full issuance burn once about half of the ETH supply is staked. The proposal surfaced ahead of the Hegotá upgrade deadline, adding a governance and economic layer to an already active upgrade cycle, while Aave founder Stani Kulechov said the changes could reduce staking incentives and weaken Ethereum's appeal for institutions and decentralized finance.

Draft Targets Rising Ethereum Staking

Under the proposal, validator issuance would face increasing burns as staking expands across the network. Once staking reaches roughly 60.25 million ETH, or about 50% of supply, newly issued validator rewards would be fully offset through burning.

Validators would still receive transaction fees and block tips under the draft. However, only newly created ETH would be subject to gradual reductions during an 18-month transition period.

Six researchers, including Ethereum Foundation researcher Justin Drake, signed the draft proposal. It has not yet received an official EIP number and arrived shortly before the Aug. 6 deadline for smaller Hegotá upgrade proposals.

According to the authors, Ethereum currently has about 41 million ETH staked, representing nearly 34% of supply. Another 2.5 million ETH remains in the activation queue, underscoring that the network is already operating with a large staked base before any change to issuance is finalized.

Proposal Draws Opposition From DeFi Leaders

The proposal quickly divided Ethereum developers and DeFi participants. Aave founder Stani Kulechov argued that reducing staking rewards toward zero would make ETH borrowing strategies largely uneconomical.

Kulechov also said unpredictable staking yields could discourage institutional investors seeking stable returns. He added that lower rewards could weaken several DeFi yield strategies built around borrowed ETH, which rely on staking economics remaining workable for participants using leverage.

He further argued that investors could move capital toward competing blockchain networks or other yield-bearing assets if Ethereum staking became less attractive.

Questions Grow Ahead of Hegotá Deadline

Mike Silagadze, founder of ether.fi, criticized both the proposal and its review timeline. He said the draft arrived with limited time for community feedback despite introducing major economic changes.

Silagadze also argued that the proposal could pressure solo stakers while favoring larger staking providers with lower capital costs. He added that several leading DeFi protocols could face capital outflows if staking demand slows.

Meanwhile, the proposal's authors estimated staking could exceed 70 million ETH by January 2028 without changes, making the discussion increasingly relevant as Ethereum developers review candidates for the Hegotá upgrade.