EIP-8363: Should ETH Be Sound Money or a Productive Asset?

**Oisín Kyne** (0:00)
We don't really have $100 billion of security. We really have $5 million a day at the current curve. And depending on what people think about equilibrium, for this new one, it might be $1 million a day or less. And I don't really know if that's enough to protect a kind of a trillion dollar computer like we want it to be.

**Laura Shin** (0:18)
Hi, everyone. Welcome to Unchained, your new hype resource for all things crypto. I'm your host, Laura Shin, newly back from vacation. Thank you so much for joining this live stream. First, we'll start with a quick word from the song.
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Today's topic is EIP-8363, the Ethereum improvement proposal about ETH issuance, which has kicked up some controversy. Here to discuss are Kevin Owocki, founder of Decoin, Oisín Kyne, CEO and co-founder of DV Labs, and Jérôme de Tychey, president of Ethereum Foundation. Welcome, Kevin, Oisín, and Jérôme.

**Oisín Kyne** (1:15)
Thank you for having us.

**Jérôme de Tychey** (1:16)
Welcome, everyone. I'm the president of ETH from France, not of the foundation yet, but glad you made the mistake.

**Laura Shin** (1:22)
Did I say the foundation? I meant to say France. I meant to say France.

**Jérôme de Tychey** (1:26)
Yeah, it's two separate entities, but we like each other's.

**Laura Shin** (1:30)
Okay. Okay. Sorry. That's probably some jet lag brain.
All right. So, Jérôme, since you are actually one of the authors of this EIP, let's have you start. Explain what problems you're trying to solve for with EIP-8363.

**Jérôme de Tychey** (1:50)
Sure.
So, we today have a curve that rewards the validators. So, if you put EIF at stake, you become a validator and you get rewarded. Under today's curve, the more EIF is staked, the more EIF is printed. We print new EIF to reward the validators. They are incentive to stake that never really switches off. The reward continue to appear and to pay, whatever the staking ratio is, how many EIF are at stake. So, at the same time, every holder that doesn't stake pays for the staking through delusion.
Thus, we want to implement a mechanism that burn a rising portion of the validator rewards, so that as the staking ratio climbs, the reward actually gets lower until the markets find its own role with the market find an equilibrium in terms of staking. So, that's the proposal in itself, a burn that grows with the staking ratio. So, the rewards tapers towards zero at around the level of half the EIF at stake. In practice, the market stops well before that, at whatever yield staker is required to participate. And staking remains attractive when participation is low in our model. But overstaking stop being subsidized, and thus it also stops the dilution that the holders are facing above certain levels.

**Laura Shin** (3:27)
And so, why did you come up with this as the best solution?

**Jérôme de Tychey** (3:34)
Yeah, so there's in the in the viz, there's a couple of things we should clarify. There's the max issuance level. That's one of the thing because the curve itself has a maximum issuance.
There's also the transition period, like how fast does this change gets implemented. There's also the ultimate level, like at what rate and do we even reach zero in term of rewards.
And yeah, I think that the shape of the curve itself that can be discussed. So we took a different thing into consideration. So there's probably like four to five years of research on the current state of the curve and how we should modify it. It's what we're building on top of research from many different researchers that I won't name them all. But we have research backing that the minimum viable issuance of Ethereum should be around 0.5 percent. That would be the minimum amount that we have to issue so that we guarantee our economic security and pay for our security budget. And this boils down to 0.5. So first, we selected a curve that matched this minimum viable issuance of 0.5.
Then we targeted the ideal staking ratio, which sits between 20 to 30 percent. And so the payout is maximal around this, the payout in terms of issuance is maximal around this range. And then in terms of making sure that the market actually finds an equilibrium and we avoid also to go beyond 50 percent at stake. The curve tends towards and reaches around the after 50 percent of if at stake. So that was also one of our reasoning. We wanted to make sure that we never crossed the 50 percent at stake level. And I think finally, if I'm not mistaken, whatever, yeah, transition period. We wanted to make sure that also this transition doesn't happen from one day to the next, like, okay, EIP has now proposed, maybe people will get considered and then it would get scheduled and then EGO tag goes live. And then suddenly we go from this amount of yield to a much lower amount. So we never wanted to have this kind of extreme transition from one day to the next. We chose a pretty long transition, ready to argue if it's long enough or not long enough. But between the time that this proposal gets discussed right now and the time that this proposal gets in full force, there will be a period of a year and a half to two years, like 18 months kicking in for sure after DeFi Live and probably a little while before we get a final date for the implementation of EGOTA. So we picked the different things that we considered from the research side, from our perception of how the market will react and how the industry will react, sorry.