Fierce backlash to Ethereum’s EIP-8363 staking proposal

Berryman argues that market forces are already slowing participation without the need to change Ethereum’s issuance policy.

“We will come to a natural ceiling probably by the end of this year,” he says, arguing that yields falling to around 2% are unlikely to attract significantly more ETH to be locked up in staking. “People need a certain amount of liquidity,” he says.

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Berryman says recent growth has largely been driven by institutional entrants such as Bitmine and BlackRock, but argues that once those players complete their staking allocations, participation is likely to plateau again.

Source: Validatorqueue.com

Ethereum commentator Leo Lanza, who also opposes the proposal, challenges the core assumption that issuance on Ethereum represents a meaningful “stealth tax” on non-stakers.

Ethereum’s annual inflation remains below 1%, he says, arguing that even gold, widely viewed as the world’s premier monetary asset, expands its supply by roughly 1% to 2% annually:

“The free market already solves this [...] Let the market adjust.”

Could the cure be worse than the disease?

Supporters of EIP-8368 argue the change would curb unnecessary issuance and discourage staking from becoming overly concentrated among large custodians and liquid staking providers. But critics say the proposal risks creating bigger problems than it’s trying to solve.

Greg Koumoutsos, technical research lead at the Lido Labs Foundation, says today’s staking ratio of around one-third of ETH supply does not appear unhealthy, though he agrees it is reasonable to think proactively about excessive staking.

More importantly, he argues the proposal oversimplifies what Ethereum’s issuance is actually paying for:

“Ethereum is not only paying for slashable ETH; it is paying for decentralization, operator diversity, censorship resistance, and network resilience.”

Koumoutsos says lower issuance is not automatically a better security policy unless those broader trade-offs are also taken into account.

Another factor to consider is that liquid staking is now deeply integrated into Ethereum’s DeFi ecosystem, and staking derivatives are widely used as collateral and in lending and yield strategies.

“It will obviously kill a huge chunk of DeFi which is built around the staking ecosystem,” Silagadze argues.

Stani Kulechov, founder of Aave, Ethereum’s largest decentralized lending protocol, says that reducing staking rewards risks undermining that broader ecosystem.

“My concern is... those who are fine with ETH beta and yield might also sell ETH for other yielding assets [...] Ethereum should not be punished for its growth.”

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Smaller validators will bear the cost

Another concern with the proposal is that lowering staking rewards could actually increase concentration among the largest participants.

“I stand firmly opposed to this EIP.” Source: Leo Lanza

That’s because independent validators do not benefit from the economies of scale that larger staking businesses, exchanges or institutional operators do. Lower protocol rewards could make solo staking uneconomical while larger organizations continue operating. Koumoutsos says:

“A solo validator has real costs: some ideological solo stakers may remain, but many marginal solo validators will not, and fewer new ones will enter, if any.”

He adds that centralized platforms also stake for reasons beyond yield, such as customer retention, regulatory positioning and product integration, which makes them less likely to reduce their participation.

Koumoutsos also warns that even within delegated staking, lower rewards could favor centralized custodial products over onchain staking protocols, which face higher maintenance, governance and upgrade costs.

A debate over more than staking

Supporters say lower issuance would strengthen Ether’s long-term monetary profile. But critics argue that continually adjusting Ethereum’s monetary policy undermines its claims to be predictable and reliable.

Berryman argues institutions value predictability more than marginally higher yields, and that changing the curve creates yield governance risk. “Institutional investors will price accordingly,” he says.

He also says institutions value staking not because the yield is especially high, but because it provides a predictable return while they hold ETH:

“It’s not broken, why try and fix it?”

Silagadze agrees, saying, “Any nation state or large institution looking at this will justifiably have a dramatic loss of confidence in the governance and stability of Ethereum.”

The proposal’s rollout also drew criticism for being published just two days before the Aug. 6 deadline for proposals to be considered for the next Ethereum network upgrade.

Silagadze says that a change with “far reaching implications for all of DeFi” should not have been published on such a short timeline.

The fierce backlash has shown how difficult it has become to change Ethereum’s economics, especially when every adjustment creates winners and losers across staking, DeFi and institutional markets.

Magazine: Ethereum’s much-hated staking ‘tax’ may already be obsolete

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