Six prominent Ethereum researchers, including Ethereum Foundation’s Justin Drake and Ethereum France President Jérôme de Tychey, have formally proposed a significant change to the network’s economics. They’ve introduced a draft Ethereum Improvement Proposal (EIP) that would gradually burn validator rewards. This mechanism aims to eliminate net consensus issuance once half of all Ethereum (ETH) is staked, a threshold currently estimated at 60.25 million ETH.
The proposal, labeled EIP-8361 (also known as EIP-8363), surfaced on August 4, 2026. Its timing is notable, arriving just two days before the submission deadline for EIPs to be considered for the upcoming Hegotá upgrade.
Addressing Ethereum’s Staking Growth
This move comes as Ethereum grapples with increasing staking ratios and concerns about potential centralization. Currently, about 33% of the total ETH supply, roughly 40 million ETH, is staked on the network. This figure hit an all-time high of 33.33% on July 28, 2026.
The existing issuance curve means validators continue to earn rewards even if a vast majority of ETH is staked. This lack of a natural off-ramp for staking incentives has fueled discussions about long-term network health and security. The authors argue that the current system provides no point where the incentive to stake more switches off, leading to unchecked growth.
How the Tapered Issuance Burn Works
The core of EIP-8361, titled “Tapered Issuance Burn,” involves systematically destroying a portion of validator rewards. For each epoch boundary, validators would face a charge against their idealized rewards for duties performed. This includes attestations, block proposals, and sync committee work.
This fraction scales directly with the total amount of staked ETH. It would hit 100% when the total stake reaches 60.25 million ETH. That figure represents approximately 50% of the current circulating ETH supply.
Once this 50% staking ratio is met, a fully performing validator would see their consensus issuance net to zero. Importantly, the proposal leaves execution-layer income untouched; transaction fees and maximal extractable value (MEV) would continue to flow to validators as usual.
The burn fraction uses a specific mathematical formula: it’s calculated as the total active balance divided by a constant SATURATION_BALANCE (fixed at 60,250,000 ETH), raised to the power of 3/2. This mechanism ensures a progressive increase in the burn rate as staking activity rises.
Projected Impact and Transition Plan
For ETH holders, this proposal presents a critical trade-off between network dilution and staking yield. Under the current system, issuance incentives can climb indefinitely, leading to continuous dilution for those who don’t stake their ETH. The “Tapered Issuance Burn” aims to cap this dilution, offering a clearer economic model for the network.
Annual issuance would peak at roughly 0.5% of the ETH supply when the staking ratio hits around 20%. It would then steadily decline to zero as the amount of staked ETH approaches the 50% target. This contrasts with the current model where issuance could continue to climb without a definitive upper limit.
If implemented today, the proposal would cut the net consensus yield for stakers from about 2.6% to 1.2% at the current staking ratio. This significant reduction in yield aims to create a more market-driven equilibrium for staking participation.
To mitigate such a sharp drop in immediate yields, the authors have included an 18-month transition period. During this time, Ethereum’s base reward factor would temporarily double from 64 to 128, gradually decaying back to its current level of 64. This aims to stabilize validator yields during the initial phase, preventing an abrupt shock to the ecosystem.
The entire adjustment period, including a six-month lead time for the fork, would span approximately two years. This phased approach is designed to give the network and its participants ample time to adapt to the new economic realities. Current figures show the consensus layer pays about 1,054,000 ETH annually, equating to a 2.62% yield, with execution-layer rewards adding at most 0.20%.
DeFi’s Hostile Reception to the Proposal
The proposal has met with a largely hostile response from several prominent figures in the Decentralized Finance (DeFi) sector. Aave founder Stani Kulechov publicly stated his view that the EIP “doesn’t achieve the outcome it tries to achieve and is actually hurtful for Ethereum.” This highlights a fundamental disagreement over the proposal’s potential effects.
Similarly, the CEO of ether.fi, identified as Silagadze, voiced significant concerns. He argued that such a change would disproportionately affect solo stakers, potentially pushing them out of the ecosystem. Silagadze believes this could leave staking predominantly to large, centralized operators who often have a lower cost of capital, inadvertently increasing network centralization.
Another key objection revolves around the timing of the draft EIP. It was published just two days before the August 6 deadline for submitting proposals to the Hegotá upgrade. This tight window for community review and debate has added to the apprehension, limiting the time for comprehensive feedback.
Broader Implications for Ethereum’s Decentralization
The researchers behind the proposal frame EIP-8361 as a necessary measure to ensure Ethereum’s long-term security and “capture-resistance.” They argue that the current system offers no upper bound on staking incentives. This could allow large entities like custodians, exchanges, and future Ethereum ETF providers to accumulate an outsized share of the staked ETH, potentially compromising decentralization.
By allowing the market to find its own equilibrium for staking rather than relying on a fixed yield floor, the proposal seeks to protect the network from potential over-centralization. It aims to prevent any single entity from gaining too much control over validator operations, a key tenet of blockchain security.
The authors believe this will foster a more robust and secure network in the long run.
This proposal builds on earlier work, drawing insights from previous research by pa7x1 and Anders Elowsson. The motivation extends beyond just economic efficiency, focusing on the fundamental security model of Ethereum. A separate Ethereum research proposal in June, concerning validator redirected revenue, also explored ways to allocate staking income, indicating a broader focus on optimizing validator incentives within the community.
Despite the strong reactions from parts of the DeFi community, EIP-8361 remains a draft Core Ethereum Improvement Proposal. It is currently undergoing community review and has not been approved or scheduled for inclusion in any future Ethereum upgrade, including Hegotá.
The conversation around optimal staking ratios and validator incentives will undoubtedly continue as the community weighs these complex trade-offs, aiming to balance economic efficiency with network health and decentralization.