A group of Ethereum researchers led by Justin Drake has proposed a new Ethereum Improvement Proposal (EIP) that would progressively burn staking rewards, with the burn intensifying as more ETH is locked up by validators. The proposal, titled "Tapered Issuance Burn," aims to reduce net ETH issuance to zero once approximately half of the circulating supply is staked.

Ethereum secures its network through Proof of Stake, a system in which validators post ETH as collateral, confirm transactions, and receive newly issued coins as ongoing compensation. Ethereum adopted Proof of Stake in September 2022 with an event known as the Merge, replacing the energy-intensive Proof of Work model — still used by Bitcoin — in which miners compete to validate transactions. The draft first appeared on GitHub in mid-July 2026. Formal discussion subsequently opened on the Ethereum Magicians forum and has been ongoing since early August.

The researcher known as pintail leads the effort. Co-signatories include Jérôme de Tychey, dapplion, pa7x1, Ladislaus von Daniels, and Ethereum Foundation researcher Justin Drake. The authors define a "saturation balance" of approximately 60.25 million ETH as the threshold — just under half of the circulating supply. Currently, around one-third of total ETH supply is staked, the highest level on record. Burning in this context means permanently destroying ETH by sending it to an unrecoverable address, removing it from circulation.

How the Protocol Would Burn Staking Rewards

The mechanism ties the burn rate directly to the total amount of ETH staked. The more capital validators deposit, the larger the share of rewards the protocol destroys immediately. Importantly, the draft sets no minimum threshold below which the burn remains inactive — it already applies at today's staking ratio and tightens further as additional ETH is deposited.

At the saturation balance of roughly 60.25 million ETH, the burn fraction reaches 100 percent, bringing net issuance to zero. With a circulating supply of approximately 120.7 million ETH, that threshold equates to 49.9 percent of total supply. Against the roughly 40 million ETH currently in the validator set, approximately 20 million ETH would still need to be added before saturation is reached.

The draft text quantifies the starting point: on the consensus layer, the annual yield currently stands at around 2.62 percent, equivalent to an annual payout of roughly 1.054 million ETH. Execution layer rewards — comprising transaction fees and priority payments — add up to 0.20 percent, bringing a validator's gross yield to as much as 2.82 percent.

Under the proposal, yields would begin declining well before the network reaches the saturation threshold. After full rollout, only about 1.2 percent of the current 2.62 percent consensus-layer yield would remain at today's staking ratio. The transition would not be abrupt, however. The authors propose a ramp-up period of approximately 18 months, beginning near current reward levels. In the early stages, stakers would see minimal impact on their returns. The extended rollout is designed to prevent disorderly exit waves from the validator set.

The Researchers' Security Argument

The researchers justify the intervention with a security rationale that challenges conventional thinking. While more capital in the system is generally regarded as enhancing security, the draft text argues otherwise. According to the authors, the marginal benefit of additional stake for economic security diminishes over time, while several risks intensify. Beyond a certain level, additional stake would make Ethereum less secure rather than more secure.

The debate is not new. Jérôme de Tychey notes that a comparable proposal was already discussed in 2024, though it failed to gain traction. De Tychey, who also serves as president of Ethereum France, frames the issue primarily as one of timing. Once the staking ratio surpasses the 50 percent mark, the cost of correction rises significantly, he argues.

"Acting now lets the market settle below 50%. Acting only after the overshoot means correcting a much larger imbalance, with more forced exits and more disruption for every participant. The gentle path is open only now." — Jérôme de Tychey, co-author of the proposal and president of Ethereum France

The proposal's logic targets market behavior. Declining yields should draw capital out of the validator set before the staking ratio reaches the threshold. Rather than imposing a fixed cap, the mechanism steers staking demand through price signals. For validators, the economics shift with every percentage point the ratio gains. Staking remains open to all, but at a progressively shrinking yield. The draft does not, however, guarantee that the market will settle below 50 percent.

Criticism from Aave CEO Stani Kulechov

Stani Kulechov, CEO of Aave Labs — the company behind the eponymous DeFi lending protocol — has voiced the sharpest objections. In Aave, users post ETH as collateral and borrow against it. Kulechov spoke publicly in early August, shortly after the forum discussion opened. The proposal, he argued, fails to achieve its stated goal and actively harms Ethereum. For DeFi, reducing yields toward zero would render common ETH lending strategies largely unprofitable, and entire use cases built on ETH-based lending and yield would disappear.

The criticism extends beyond individual protocols. Solo stakers are seen as particularly exposed, as they rely more heavily on ongoing rewards than large institutional providers. Small operators also bear fixed costs for hardware and operations, which become harder to cover as yields decline. Liquid staking tokens such as stETH would similarly lose appeal, since their returns derive directly from validator rewards. Beyond Lido, major centralized exchanges such as Coinbase and Binance rank among the largest staking providers, meaning a handful of entities already control a significant share of the validator set — a concentration trend that has drawn repeated concern from community advocates.

The financial stakes are substantial. Liquid staking protocols currently manage approximately USD 34.9 billion, of which roughly USD 17.6 billion sits with Lido. Against an ETH market capitalization of approximately USD 225 billion, this represents roughly 15 percent of total network value. Critics further note that the staking yield serves as a benchmark for numerous interest-rate strategies across DeFi lending markets. Its elimination, they argue, would undermine the foundational logic of applications built on top.

Time Pressure Ahead of the Hegotá Upgrade

The authors submitted the draft just days before the deadline for non-headliner EIPs tied to the upcoming Hegotá upgrade. That upgrade follows Glamsterdam, released in early 2026, and is scheduled for late 2026. Its primary focus remains scaling and efficiency. The draft does not yet carry an official EIP number; labels such as EIP-8361 and EIP-8363 currently circulating in media reports are unofficial. Core developers will decide whether to include the proposal in the upgrade package.

Underlying this debate is a long-standing question of monetary policy. Unlike Bitcoin, which has a fixed supply cap of 21 million coins, Ethereum has no hard supply ceiling. Its monetary policy remains adjustable through protocol parameters. The most significant change to date was EIP-1559, implemented in 2021, which destroys a portion of transaction fees through the base fee burn. Since then, Ethereum has occasionally turned deflationary during periods of high network demand. The new draft would extend that mechanism to the issuance side as well. Proponents of the "ultrasound money" narrative — a term popularized within the Ethereum community to describe ETH's potential to become consistently deflationary — would view such a step as reinforcing that thesis.

Not all observers view the proposal negatively. Zach Pandl, head of research at Grayscale, considers slowing supply growth a positive factor for ETH. The network, he notes, distributes its cash flows through inflation — a company pays dividends, while Ethereum compensates participants through newly issued coins.

The proposal also arrives roughly one month after the Ethereum Foundation released its revised strawmap, which envisions an extremely lean Ethereum. Core developers will now debate the measure in the Ethereum Magicians forum.