Ethereum Researchers Propose Gradual Burn of Validator Rewards to Stave Off Centralization
Six Ethereum researchers, including Justin Drake from the Ethereum Foundation, have proposed a new economic framework under EIP-8361 to counter the centralizing effects of growing staking. The draft outlines a system in which validator rewards are gradually burned as more ETH is staked, reaching a complete burn when staked ETH hits 60.25 million—approximately half of the total supply. This would effectively bring net issuance of new ETH to zero, as no new coins would be allocated to validators.
The researchers argue that the current model, which rewards validators with newly issued ETH, has inadvertently led to more ETH being staked through large exchanges and centralized staking pools. They see this as a problem: the more concentrated the staking, the less decentralized and secure Ethereum becomes. This growing stake could push individual stakers further into the margins, threatening the network’s foundational principles.
How EIP-8361 Proposes to Change Rewards
Under Ethereum’s existing system, validators earn rewards in the form of newly created ETH for participating in securing the network. However, under the EIP-8361 proposal, a portion of these rewards would be destroyed instead of given to validators. This burning would increase as staking grows, reaching 100% by the time staked ETH hits the 60.25 million threshold. This gradual change would not interfere with transaction fees or tips earned by validators, ensuring that their primary sources of income remain untouched.
The burn mechanism would be introduced slowly to allow the network and its participants to adapt. The transition is expected to take approximately two years. The first stage of this adjustment would begin 18 months after the proposal is implemented, giving validators, DeFi participants, and other stakeholders time to adjust their strategies and expectations. This gradual rollout aims to minimize disruptions to the Ethereum ecosystem.
Debates and Criticisms Emerge
Despite its potential benefits, the proposal has sparked division among Ethereum developers and DeFi participants. Stani Kulechov, CEO of Aave Labs, highlighted concerns over its impact on DeFi. He explained that if staking rewards were reduced to near-zero levels, many borrowing strategies that rely on staking yields would become unprofitable. For example, Aave data indicates that a large portion of borrowed ETH is used to acquire additional staking positions. A drop in staking returns could threaten the liquidity and functionality of DeFi platforms.
Mike Silagadze, founder of ether.fi, criticized the rushed nature of the proposal’s release. The EIP was introduced with just 48 hours for public feedback—a short window for a proposal with potentially sweeping economic consequences. Silagadze argued that the change would disproportionately hurt solo stakers, who would lack the support of major institutions like the Ethereum Foundation. He also warned that it could lead to a mass exodus of capital from DeFi, negatively impacting seven of the top 10 DeFi protocols.
Currently, around 41 million ETH is staked, which accounts for nearly 34% of the total supply. An additional 2.5 million ETH is in the activation queue, waiting to be added to staking. This queue can take six weeks or more to process. Ethereum enforces limits on how quickly validators can join or exit the network to prevent rapid, destabilizing movements of capital by large groups. These limits create both entry and exit queues, with about 57,600 ETH being activated per day.
Staking Growth and Network Implications
One of the main concerns of the researchers is that, without intervention, staking could hit 70 million ETH by January 2028. Once staked ETH reaches a certain threshold, the researchers argue, it could become a liability rather than an asset. Large exchanges and staking platforms would likely hold most of this ETH, pushing smaller stakeholders out of the market. This concentration could undermine the network’s security and decentralization, which are essential for Ethereum’s long-term success.
The EIP-8361 proposal missed a key deadline for inclusion in the Hegotá upgrade, a significant network update scheduled for the second half of 2026. Hegotá is expected to focus on structural improvements, censorship resistance, and state size reduction. The proposal’s future is still uncertain. Whether it will be accepted in this or a future update depends on further discussions within the Ethereum community. The debate highlights the broader tension between maintaining decentralization and managing Ethereum’s economic evolution.