Joseph Chalom, CEO of SharpLink, opposes a proposed adjustment to Ethereum’s staking rewards, arguing that if issuance-based validator rewards eventually fall to zero, ETH’s appeal to institutional capital could diminish, and the cost of capital in DeFi markets such as on-chain lending could rise.
The proposal aims to reduce the issuance reward.
The point of contention centers on a proposed Ethereum upgrade. Under the proposal’s design, as the amount of ETH staked increases, the proportion of consensus-layer rewards burned will gradually rise. When staked ETH approaches approximately 60.25 million, or about half of the current supply, the newly issued ETH rewards to validators could drop to zero.
Under this scenario, validators would still receive transaction priority fees and MEV income, but would no longer receive newly issued ETH. The proposal also envisions an approximately 18-month transition period to avoid a sudden drop in yields. This proposal is currently still a draft and has not yet entered the Ethereum network upgrade process.
SharpLink claims it will increase on-chain funding costs.
Chalom believes that staking rewards are not only returns for validators but also an important reference for on-chain interest rates on Ethereum. The reason liquid staking tokens can enter DeFi scenarios such as lending while retaining exposure to the underlying asset is fundamentally due to the validator rewards backing them.
He cited data showing that the total value locked in liquid staking products is currently around $35 billion. If issuance rewards are compressed to zero, while infrastructure expenses and operational costs remain, the actual returns for some participants could be significantly eroded—or even turn negative.
He also noted that this change could drive collateral toward assets that continue to generate returns. Independent validators and small-to-medium-sized staking services may face more pronounced pressure, as they lack economies of scale and have fewer additional revenue sources.
Supporters of the proposal and institutions are growing more divided.
Supporters of the proposal hold a different view. They argue that Ethereum’s current issuance curve continues to incentivize more ETH to be staked even though staking levels are already high, and the additional security benefits from new staking are now limited.
Chalom argues that Ethereum can continue to control issuance and reinforce scarcity, but should rely more on the existing base fee burning mechanism rather than directly weakening the issuance-based staking reward structure. He believes that issuance rewards本质上 are a transfer of value to validators who secure the network, not a cost to external parties.
This divergence is also related to the expansion of institutional participation pathways. Previously, SharpLink had allocated nearly all of its ETH to staking. According to its disclosed data, the company had staked nearly 900,000 ETH by April of this year, accumulating over 18,000 ETH in rewards. In May, the company also committed $100 million to an on-chain yield fund managed by Galaxy Digital, aiming to generate additional on-chain yields while maintaining its ETH exposure.
Meanwhile, Ethereum yield products in the U.S. market are also advancing. Grayscale completed the first staking yield distribution for its U.S.-listed Ethereum exchange-traded product in January this year. At the time of this article’s publication, the price of ETH was approximately $1,916, and the market had not yet shown any clear movement in response to SharpLink’s statement.