Key Highlights
- Aave founder Stani Kulechov argued that EIP-8361 would make Ethereum staking rewards unpredictable and less attractive for institutions and solo stakers.
- He warned the proposal could reduce the viability of ETH borrowing strategies in DeFi and push investors toward alternative yield-bearing assets.
- EIP-8361 aims to cap staking incentives by reducing issuance to zero once 50% of ETH supply is staked, addressing concerns over excessive staking growth, security, and monetary dilution.
Aave founder and CEO Stani Kulechov has criticized Ethereum Improvement Proposal 8361, known as Tapered Issuance Burn, arguing that the proposed changes to Ethereum’s staking issuance policy could weaken the network rather than achieve their stated goals.
In an X post on Tuesday, Kulechov contended that the proposal fails to deliver its intended outcomes and introduces new risks. He said capping rewards at zero once staking exceeds 50% of supply would render staking yields unpredictable and, in some cases, fully uneconomical.
According to Kulechov, the uncertainty could deter institutional participants who prefer assets with more stable cash-flow characteristics available on other networks. He added that solo stakers, who may be more sensitive to pricing changes, would also face greater uncertainty.
Why Kulechov says DeFi could suffer
Kulechov also argued that reducing staking rewards toward zero would undermine many ETH borrowing strategies in decentralized finance (DeFi). He said borrowing ETH would lose much of its yield-driven appeal, leaving short selling as one of the primary remaining use cases.
Under the proposal, earning yield on ETH would largely require direct staking, which involves lock-up periods rather than the instant liquidity typically available through DeFi protocols. Returns would also depend on the staking ratio remaining below the proposed 50% threshold.
He further suggested that holders seeking both price exposure and yield might shift toward other yield-bearing assets such as stablecoins, a pattern observed in traditional finance when rates decline.
Kulechov concluded that the proposal could make ETH less viable as an asset and restrict its broader potential. He expressed hope that the proposal does not advance, warning that, otherwise, interest could migrate to other networks. He emphasized that Ethereum should not be penalized for growth in staking participation.
What EIP-8361 would change
EIP-8361, submitted by a group of contributors, proposes modifying Ethereum’s issuance curve by gradually reducing staking rewards once more than 50% of the total ETH supply is staked.
Ethereum’s staking ratio passed one-third of the total supply in April 2026 and has continued to increase. Under the existing issuance curve, annual yields do not fall below approximately 1.5% even if the entire supply were staked. The proposal’s authors note that the current system provides no natural off-switch for staking growth.
Based on current validator entry rates of approximately 1.75 million ETH per month, they estimate that more than 70 million ETH could be staked by Jan. 1, 2028, representing more than 55% of the total supply.
What developers want the change
The EIP outlines two primary concerns. First, on security: beyond a certain point, additional stake may reduce rather than enhance network security. Solo stakers could face pressure from taxes on nominal yields and real-yield dilution, potentially concentrating stakes among custodians and large staking providers.
This, in turn, could weaken the social layer’s ability to coordinate a fork against a compromised validator set. Second, on ETH’s monetary properties: continuous issuance functions as a dilution tax on non-staking holders.
At high staking ratios, liquid staking tokens and other derivatives may displace native ETH as the primary working asset in the ecosystem, replacing a neutral, trustless token with intermediated claims.
Under the proposed taper, the base reward factor would decline linearly from 128 to 64 over 18 months, with approximately six months of additional fork lead time, giving the network roughly two years to adapt. Issuance would peak near 0.5% of supply per year around a 20% staking ratio and fall to zero at 50%.
The discussion around EIP-8361 highlights broader debate within the Ethereum community over how to balance security, monetary policy, staking incentives, and the long-term role of ETH within the DeFi ecosystem.
Also Read: Hyperliquid’s HIP-3 Tops $4B in Open Interest for First Time
