Aave Founder Criticizes Ethereum Staking Proposal as Demand Threat

Developer Jerome de Tychey submitted EIP-8361, titled "Tapered Issuance Burn," as a fresh proposal to cap how much new ETH gets created through staking. The proposal would reduce staking issuance to zero once staked ETH reaches 50% of total supply, meaning validators would eventually stop earning new issuance rewards entirely. The yield reduction would phase in over roughly 18 months, with an additional six months of lead time before the network fork activates, giving the ecosystem about two years to adjust. Under the plan, issuance would peak at around 0.5% of supply annually near a 20% staking ratio, then gradually taper to nothing as the 50% threshold approaches.

De Tychey argues the current system offers no built-in limit on dilution and provides no natural mechanism to slow rewards as more ETH gets staked. He noted the proposal builds on years of research and public debate among core Ethereum contributors, including input from Vitalik Buterin and other longtime researchers.

Kulechov contends the proposal solves the wrong problem. In a lengthy post, he said capping rewards to zero above 50% staked introduces the kind of unpredictability that deters serious capital. Institutions generally prefer assets with predictable yield over ones where returns could vanish based on a supply threshold, he argued, adding that solo stakers—typically more sensitive to pricing changes than large institutional players—would also face deterrents.

Kulechov's sharpest criticism targeted lending markets. If staking rewards fall to zero, most reasons to borrow ETH within DeFi would disappear, since there would be little upside left to justify borrowing costs. He suggested that investors comfortable holding ETH purely for yield exposure might rotate into other yield-bearing assets instead, including stablecoins, a shift comparable to capital moving between asset classes in traditional finance when interest rates change.