EIP-8363 Sparks Heated Debate in Ethereum Community

Original | Odaily Planet Daily (@OdailyChina)

Author | jk

In early August, the Ethereum community was stirred by a proposal numbered EIP-8363, titled "Tapered Issuance Burn."

The proposal suggests that as the proportion of staked ETH approaches half of the total supply, the additional issuance rewards earned by validators should be gradually burned until they reach zero. In other words, the returns from staking ETH will continually decrease, effectively undermining the business models of treasury companies and staking pools.

The debate sparked by EIP-8363 among Ethereum researchers, DeFi protocol founders, and publicly listed ETH treasury companies has been described by Aave founder Stani Kulechov as one of the most resisted proposals in Ethereum’s history, with 30 minutes of dedicated discussion time allocated at the Core Developers Call (ACDC #184) on August 6.

What problem is this proposal really trying to solve? Where do supporters and opponents disagree? What impact will it have on publicly traded companies betting on ETH staking yields once implemented? Odaily Planet Daily will provide a detailed analysis in this article.

Let’s set aside the technical jargon and understand what EIP-8363 is doing in simple terms.

Ethereum’s current issuance mechanism can be likened to a money-printing machine that distributes funds based on the number of people: the more ETH that is staked, the greater the total issuance, but because this increased supply is spread across more participants, the individual yield (APR) per person decreases. A key feature of this design is that the machine never stops entirely—no matter how many ETH are staked. Even if 100% of all ETH were staked, validators would still receive a minimum yield of approximately 1.5%.

The authors of EIP-8363 believe that this always-on design carries risks. As long as staking rewards offer higher yields than other crypto assets, rational capital will continuously flow into staking, causing the staking ratio to rise steadily. A disproportionately high staking ratio often means that more ETH is held by centralized entities—such as exchanges, custodians, and ETF issuers—rather than by individuals genuinely committed to securing the network.

Therefore, the proposal introduces a gradual burn mechanism. As the total staked amount approaches 62.5 million ETH (approximately half of the current supply), the system progressively burns a rising portion of the issuance rewards that validators would otherwise receive, destroying them entirely and not distributing them to anyone. When staking reaches this threshold, validators' net earnings from issuance will be reduced to zero.

Original forum for EIP-8363. Source: Ethereum Magicians forum

This mechanism includes two patches: First, this system only burns issuance rewards and does not affect execution-layer income—such as transaction fees and MEV (Miner Extractable Value) earned by validators for packaging transactions—so even if issuance rewards drop to zero, validators will still receive some income. Second, penalty mechanisms, such as slashing for downtime or malicious behavior, remain unchanged; validators will still incur losses for poor performance, but it will simply take longer to recover those losses.

This proposal, co-signed by six authors including Ethereum Foundation researcher Justin Drake and EthCC co-founder Jérôme de Tychey, is still in its earliest Draft stage and has a long way to go before being incorporated into a hard fork upgrade—but it has already sparked intense debate within the community.

Supporters: A sufficient reward is enough; more than that becomes a burden.

Within the Ethereum research community, there has long been a prevailing view that network security does not increase linearly with the amount of staked ETH, but rather reaches a point of diminishing marginal returns. Beyond this threshold, additional staked ETH provides little meaningful increase in the cost of attacking the chain, while instead exacerbating the concentration of wealth and power among a small number of large institutions. Those who hold this view argue that rather than allowing the staking ratio to rise unchecked, it would be wiser to set a deliberate upper limit.

Supporters argue that if the issuance curve remains unchanged, ETH’s net supply growth could approach 1% annually, effectively acting as an invisible inflation for ordinary holders who do not participate in staking. Closing this gap would, in theory, strengthen ETH’s long-term scarcity narrative. A report earlier this year by Grayscale’s research team took a similar stance, suggesting that controlling inflation and reinforcing ETH’s position as a store of value would be beneficial for its price in the long term.

Another perspective holds that this mechanism actually protects solo stakers, as institutional stakers often incur management fees and compliance costs, while ordinary individuals running nodes from home face almost none of these additional burdens. When overall yields are suppressed and market-driven returns approach risk-free levels, solo stakers with lower overhead are better positioned to persist, while intermediaries reliant on high yields to cover operational costs are more likely to be eliminated.

Opposing view: The centralization risks the proposal aims to mitigate would instead be accelerated by this mechanism.

Stani Kulechov of Aave calculated that, based on the current staking ratio and including both issuance rewards and MEV income, validators’ total returns would drop from approximately 2.86% to 1.48%, a reduction of nearly half. He argues that once returns approach zero, only entities staking for structural, compliance, or product-related reasons—such as exchanges, custodians, and institutional ETFs—will remain, which are precisely the parties the proposal originally aimed to exclude. In contrast, ordinary individuals and small independent operators staking purely for economic returns are likely to be the ones filtered out.

At the same time, the proposal includes a transition period during which the nominal rewards received by validators are temporarily increased, then gradually reduced and approximately half of them are burned. This means that in countries with a "taxed upon receipt" rule, such as the United States, the taxable income for independent stakers could appear to double on paper, placing significant strain on the cash flow of ordinary stakers.

Opponents also worry that this would undermine an implicit benchmark rate in DeFi. ETH staking yields have served as a reference anchor for on-chain lending and derivatives pricing; once they approach zero, strategies such as borrowing ETH to short ETH would become illogical, potentially disrupting the business models of lending protocols and liquid staking tokens (LSTs). The founder of ether.fi bluntly stated that the proposal is disappointing on every level, while the Lido team pointed out that issuance rewards purchase not only slashable staked ETH but also node operator diversity and network censorship resistance—elements that will become harder to sustain once yields drop to zero.

This sounds somewhat biased, given that major opponents like Aave, Lido, and ether.fi are themselves protocols that rely on staking and DeFi yields. Ethereum’s founder, Vitalik Buterin, has not publicly commented on this proposal, and Justin Drake, one of the proposal’s co-authors and a researcher at the Ethereum Foundation, has also been silent on the matter for some time.

According to the formula outlined in the proposal, with the current staking ratio of approximately 34%, validators' net earnings from issuance are expected to decline from around 2.6% to approximately 1.2%. If the staking ratio rises further to 50%, this portion of earnings would drop to zero. It is important to note that this reduction applies only to issuance rewards; transaction fees and MEV income remain unaffected. Therefore, the actual total yield reduction will be slightly less than the theoretical 50% cut, estimated at around 40%.

Affected by this news, Lido and Ether.fi both declined by more than 10%.

Lido experienced a noticeable decline at the beginning of the month. Source: Coingecko

Ether.fi price chart. Source: Coingecko

What impact will publicly traded companies that bet on ETH staking yields face? Will their stock prices plummet sharply?

Over the past year and a half, a group of ETH treasury companies have gone public on U.S. stock markets. Their business model is relatively straightforward: raise capital to purchase large amounts of ETH, stake those ETH to earn interest, and use the stable staking income to support their financial statements, while presenting to shareholders a narrative of continuously increasing ETH per share. Industry data shows that among the treasury companies that separately disclose staking income, staking rewards on average account for about 60% of reported revenue—essentially serving as the sole revenue source for many of these companies.

These companies have different levels of risk exposure.

• BitMine (BMNR) is currently the largest ETH treasury by holdings, with approximately 5.8 million ETH, about 87% of which are staked, generating an annualized staking income in the hundreds of millions of dollars. If the net consensus yield roughly halves, its annualized staking income would decrease from approximately $257 million to the range of $120–130 million.
• SharpLink (SBET), the second-largest ETH treasury backed by Consensys/Ethereum co-founder Joe Lubin, holds nearly all its assets in staking, with staking income accounting for up to 97% of its quarterly total revenue—meaning the company’s income could potentially decline by more than 35%. Joseph Chalom, CEO of the company and former head of digital assets at BlackRock, has publicly opposed this proposal, arguing that native staking rewards represent ETH’s key differentiator against Bitcoin; weakening them would increase holding costs for institutional capital and could, over the long term, encourage some funds to shift elsewhere.
• Bit Digital (BTBT) is relatively unique, having transitioned into an ETH staking and treasury company in June 2025, yet its reliance on staking is low and actively declining: as of May 31, only approximately 74,163 ETH (about 46%) were staked (down from a peak of around 89%); the company explicitly stated it is reducing its staking ratio to “maintain flexibility and pursue higher-yield opportunities.” Additionally, it holds about 27 million shares of WhiteFiber (WYFI), valued at approximately $755.6 million as of May, making it significantly less dependent on staking than BitMine, SharpLink, or Ether Machine.

It’s worth noting that the market’s current reaction is primarily reflected in the prices of liquid staking protocol tokens such as Lido (LDO) and ether.fi (ETHFI), both of which dropped more than 10% within a day or two after the proposal was announced. Meanwhile, the spot price of ETH and the stock prices of several treasury companies have not yet shown clear movements directly tied to this proposal, remaining largely influenced by ETH’s own price volatility. The impact of this development has not yet truly reached the stock prices of treasury companies.

This proposal is still far from being implemented.

It is still at the initial draft stage and has not entered the formal process to be included in any upcoming upgrade. At the core developers’ meeting on August 6, the team dedicated half an hour to discussing it; however, meeting notes indicate that participants generally raised concerns regarding small validators and centralization, and the recommendation following the meeting was to consider withdrawing this proposal from the current Hegotá upgrade. Furthermore, EIP-8363 is not included in the final, confirmed list of proposals slated for inclusion in this upgrade.

Can it be determined whether it will pass in the future? Currently, there is severe division in community consensus, with substantial support and opposition voices; it is unlikely that one side will convince the other in the short term.

A more pragmatic assessment is that even if this proposal does not ultimately pass in its current form, the issue of setting an upper limit on Ethereum staking ratios is unlikely to disappear. It will likely reemerge in the future, either in a revised version or as a completely different proposal—such as introducing a minimum yield floor, extending the transition period, or redesigning the trigger thresholds—to address the most prominent objections raised today.