Bits + Bips: Should Ethereum Really Burn Its Staking Yield to Zero?

**Austin Campbell** (0:00)
You're listening to a brief segment from one of the Bits and Bips episodes this week. The full show is now only available on its own dedicated Bits and Bips channels. So be sure to go to X, YouTube and your favorite podcast platform and search for Bits plus sign Bips, spelled B-I-P-S and subscribe.

**Austin Campbell** (0:21)
There is a proposal, correct me if I'm wrong, it's like BIP8361 I believe, two, something right around there.

**Austin Campbell** (0:30)
Three.

**Austin Campbell** (0:31)
Three, thank you. Which is basically this, it's bringing Ethereum staking rewards down significantly, possibly to zero, where what it does is burns a rising share of validator rewards as the staking ratio climbs, hitting a 100% burn rate at 60 and a quarter million ETH, or roughly half of the supply.
Authors of this included Justin Drake of the Ethereum Foundation and ETHCC co-founder Jerome DeTayche, I'm pronouncing that wrong, phases in over about 18 months and burns only newly issued ETH. This is not transaction fees or tips. Right now, about 41.5 million ETH is staked, 34% of supply, with 2.5 million more in the queue. So here's the case for.
Under the current curve, Ethereum's yield never drops below 1.5%, even with all ETH staked. The incentive to stake never switches off. Where does it stop? It doesn't. The entry queue is saturated at max churn, adding 1.75 mil per month. At the current rate, by Jan 1, 2028, over 55% of supply will be staked. And past a point, more stake makes Ethereum less secure. The social layer loses its fork backstop against a captured validator set. So that is the argument. There's 48 hours to comment on the monetary policy change. Mike Siligadze has been complaining about that one being, this is a very rapid thing. Seven of the top 10 protocols could face an exodus. This is a dramatic loss of confidence in governance and stability to be done this way.
There's also a statement that this is one of the most resisted Ethereum protocols or proposals ever. That was from Stanley at Aave.
Basically the EF's ivory tower academic approach will not solve these challenges. It's disconnected from the builders in the trenches. Let's talk about the institutional side. So Joseph Shalom, SharpLink CEO, former guest. SharpLink opposes it. Validators earn roughly 2.75% newly created ETH. Tips only account for 15% of staking yields. Validators would be asked to go on securing Ethereum to earn no issuance for it, living on transaction tips alone, being proposed at a moment of tremendous momentum for Ethereum. So I'm going to pause there because there's more that's happened over the next 12 hours. But Seth, I want to take a breath and ask you, without getting into the details of the ongoing fight, on an initial proposal basis, how are you looking at this? How are you seeing at this? Is this solving a real problem or is this academic theorizing?

**Seth Ginns** (3:34)
I mean, look, I'll be honest. I didn't see this problem as something that was front and center going into the proposal.
So I kind of go to the latter view, which is that this is a little bit of an academic push. One that, look, there's some very big stakeholders around ETH now in a post-stat world where the largest holder of ETH is Bitmine. You really need to work in a very coordinated way. There should be a broad lead-up discussion to fundamental changes like this. So, and this came as a surprise broadly to the community. Now, I think the pushback would be, well, this is the proposal. Let's talk about it now. But it seems a little bit like a solution looking for a problem at least right now. But Chris, I know you have some strong views around this as well.

**Chris Perkins** (4:50)
I think this is great because I think the EF is about to eat its own cooking.
When people get all crazy about crops and this and that, and for people who don't know what crops is, Ethereum is really leaning into what differentiates it, which is its decentralization, its million validators, censorship resistance. And I do think that that is Ethereum's edge.
But the EF is not a centralizing force. And we're seeing other nonprofits coming along as well. And I think what you're going to see here is this is going to fail. Why is it going to fail? Because the community, the applications that are accruing a lot of value and have the potential to probably accrue more value, because many of us believe the fat protocol thesis is not where that value accrues going to be. So they're eating their own cooking in a sense because they don't control Ethereum. And that's a good thing. I don't think they want to. Now, as you start looking at it, probably the most concerning part of this is that if there's a perception that they have control of the network and they're controlling the direction, then you don't want to recreate the Fed here. It's just not recreating the Fed where you have a bunch of people go into a smoke-filled room and come out and tell you what the rates are. Like, that's not how it's supposed to work, right? This should be a community-driven environment. The other thing that I'm glad is starting to bubble up, the light bulb has not gone out yet, but it's coming, and that's that interest rates can rule the world. Yield rates rule the world. Why do we care so much about the Fed? It drives everything in the economy. Ethereum's yield rate, you invented something called Caesar, like, you know, disclaimer, disclosure. I, you know, this is a big part of that, right? It's risk-free rate, right? But that rate drives the economy. And like these ecosystems, these blockchains, these layer ones, they're economies. Those rates matter and you can't have people manipulating them or messing with them, then you get LIBOR. So I'm all about, I'm not saying that the EF is manipulating anything, by the way, but I'm just saying this is what we don't want. We don't want that.