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Ethereum Reward-Cut Proposal Splits Devs and DeFi

Written by Eric Nkando
3 min read · Updated August 5, 2026
Hand holding a gold Ethereum coin in front of a cryptocurrency trading screen with red and green price charts and an overlay headline reading “Ethereum EIP-8361 Could Cut Staking Rewards Nearly in Half,” showing a proposed Ethereum staking reward reduction that could affect validators and DeFi strategies.
  • EIP-8361 would cut Ethereum validator yield from 2.6% to around 1.2% over 18 months.
  • The mechanism burns rewards as total staked ETH rises toward a set threshold.
  • Aave’s founder and Ether.fi’s CEO have both criticized the proposal.

A new Ethereum Improvement Proposal would cut validator staking rewards nearly in half as more ETH gets staked, and DeFi builders are already warning about the fallout.

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EIP-8361, authored by a group including Ethereum Foundation researcher Justin Drake, introduces what its authors call a tapered issuance burn. As total staked ETH climbs toward roughly 60.25 million tokens, about half of the current supply, the burn fraction rises until net new issuance hits zero. 

At today’s staking levels, the proposal would take the validator yield from about 2.6% to roughly 1.2%, phased in over 18 months.

This is different from a simple rate cut. It’s about whether a widely used DeFi strategy still works once the math underneath it changes.

A common Ethereum trade involves depositing a liquid staking token like wstETH as collateral on Aave, borrowing WETH against it, converting that WETH into more staked ETH, and depositing again. The strategy is profitable as long as staking yield stays above the cost of borrowing WETH. Galaxy Research has noted that once borrowing costs exceed staking yield, debt grows faster than collateral and that raises liquidation risk across the loop.

Aave founder Stani Kulechov called the proposal counterproductive. He argued it would weaken institutional demand for ETH and disrupt DeFi borrowing built around staking yield. Ether.fi CEO Mike Silagadze went further, warning it could push out solo validators who lack subsidies larger players receive.

Why EIP-8361 Supporters Want Lower Validator Rewards 

Proposal author Jérôme de Tychey argued the change is necessary because the share of ETH being staked passed 33% in April, a trend the authors say risks concentrating the asset among large custodians and liquid staking providers over time. Unchecked issuance, they argue, dilutes every ETH holder regardless of whether they stake.

The proposal was submitted close to a deadline for inclusion in Ethereum’s upcoming Hegotá upgrade and may not make that window. Whether or not it does, the debate has already surfaced a real tension: issuance that’s too generous dilutes holders, but a rate cut that arrives too fast could unwind leveraged positions built on the old assumptions.

Sources:

Tech Times: Ethereum Proposal Would Zero Staking Rewards Once Half of ETH Supply is Staked

Yahoo Finance: Ethereum Proposal Would Burn Staking Rewards to Zero if Half of ETH is Staked