PodcastBanklessJerome de Tychey

Ethereum Has an Issuance Problem

The discussion centers on an Ethereum issuance proposal that would make rewards taper toward zero as staking approaches roughly 50%, with advocates framing the change as a defense of credible neutrality and a way to limit validator concentration. Participants weigh the trade-offs for solo stakers, liquid-staking providers, DeFi activity, market liquidity, and unstaked holders facing dilution. Forecasts range from Ethereum exceeding 50% staked by 2028 to higher ETH prices, greater DeFi demand, and potential long-term valuations of $10 trillion or $20 trillion if issuance is reduced.

EthereumDeFiCrypto Markets

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Key Takeaways

The proposed EIP would make the burn rise with the staking ratio, tapering rewards toward zero at roughly 50% of ETH staked, while the speaker expects Ethereum could exceed that threshold by 2028 if current staking growth continues. He argues that such a trajectory could be detrimental to Ethereum’s security and the asset.

The issuance debate centers on whether Ethereum is paying more for security than necessary: the guest describes issuance beyond the security requirement as an excess tax on unstaked holders, while another speaker argues that the current curve may push solo stakers out and intensify concentration. The proposed reform would reduce maximum issuance from roughly 0.9% toward 0.5%, with the approximately 0.4-percentage-point reduction valued at about $1 billion at the current ETH price.

Speakers argue that staking returns should be judged after issuance-driven dilution rather than by headline yield alone; current issuance can leave unstaked holders facing roughly 2.5% annual dilution even when nominal staking yield is about 1.5% at full participation. The guest says reform is easier at 20% staked than at 34%, making the roughly two-year transition available today potentially time-sensitive.

The proposed issuance change is presented as a tradeoff between protocol security and ETH’s use elsewhere: staking currently offers roughly 1.5%–2.2% over two to three years versus about 1.1%–1.2% for a conservative liquidity strategy, potentially steering ETH away from DeFi. One speaker argues that Ethereum may be overpaying for security and reducing ETH’s productivity outside staking.

Higher staking participation can reduce ETH available for purchase, which the speaker argues may worsen market depth and increase slippage, while liquid-staking incentives steer nontechnical holders toward dominant providers such as Lido. Network effects and perceived bailout protection could reinforce that concentration, even though the speaker rejects describing A and Lido as a cartel.

The host warns that pursuing radical self-reliance by reducing ETH flows into DeFi could damage the application economy built around A and Uniswap, while another speaker argues that removing issuance would eliminate the subsidy supporting looping activity and could cause that market to contract. These concerns frame issuance reform as more than a validator-economics change.

GEO-POLITICS

EIP Deadline — The EIP process will remain open through the October 26 consideration-for-inclusion deadline. Participants are still debating the proposal and seeking rough consensus, so its parameters may change.

“and let the let the PFI process continue like we have a like the 26th of October for the consideration for inclusion deadline. we want to let this debate continue…”—

Issuance History — The issuance debate has been active for at least five years. An earlier asymmetric validator-queue change slowed new entries without changing exits, while All Core Devs and Lido raised concerns about a more aggressive 2024 proposal that was later halted.

“This is this issue has been going on for at least 5 years. so much so that the researchers who worked on it have almost all given up.”—

Neutrality Measure — One advocate says the EIP is the minimum measure he can take to defend Ethereum’s credible neutrality. He describes the moment as existential for the Ethereum community; both are attributed judgments.

“I'm doing it because I care very deeply about Ethereum…”—

TECHNOLOGY

Staking Equilibrium — The proposed EIP would introduce a burn that rises with the staking ratio. Rewards would taper toward zero at roughly 50% of ETH staked while remaining attractive when participation is low.

“So we are introducing an off street a guarantee that the market will find an equilibrium a burn that grows with the staking ratio…”—

Validator Capture — The speaker argues that Ethereum’s credible neutrality depends on preventing a small group of actors from capturing the validator set. He warns that major financial firms would not build on a captured chain.

“One on this issue of capture. W I will not support and Wall Street will not build on a chain that has been captured by a cartel of small interests…”—

Validator Targets — The speaker says Ethereum’s proof-of-stake design was originally associated with 20%–30% of ETH staked. Vitalik Buterin has discussed a level as low as 15%, while the current path could allow roughly 50%.

“so this is what uniquely separates Ethereum from every other proofofstake chain…”—

ECONOMY

Issuance Dilution — Ethereum’s current issuance curve continues rewarding staking even at full participation, when nominal yield would still be about 1.5%. Unstaked holders bear the dilution, with a stated worst-case loss of roughly 2.5% annually.

“even at 100% of E at stake which would be like the limit max limit of course like 100% of E at stake we are about 1…”—

Reform Timing — The guest argues that issuance reform is easier at 20% of ETH staked than at 34%. He says a roughly two-year transition available today may not remain feasible as participation rises.

“So fixing the fixing the issuance when we have 20% of E at stake is much easier than fixing it when we are at 34…”—

Issuance Cap — The speakers discuss reducing maximum issuance from roughly 0.9% toward 0.5%. They describe the proposed reduction of about 0.4 percentage points as worth approximately $1 billion at the current ETH price.

“the max issuance that Ethereum can live on is 0.5 actually at the same level of staking that we have today will be closer to…”—

MARKETS

Issuance Sell Pressure — The speaker argues that ETH issuance creates negligible secondary-market sell pressure because stakers are generally inclined to hold their rewards.

“the natural thing to do for all ETH stakers is to hold the ETH that they are issued…”—

DeFi Crowding Out — The guest argues that staking offers roughly 1.5%–2.2% over the next two to three years, versus about 1.1%–1.2% for a conservative liquidity strategy. That spread steers ETH away from potentially more productive DeFi uses.

“And it's paying 1.1 or 1.2%. you're never never going to have Tom Lee provide liquidity to this when he can have at least 1…”—

LST Concentration — Staking incentives steer nontechnical holders toward dominant liquid-staking tokens because they combine ease of use with liquidity. Network effects and perceived bailout protection can reinforce concentration in Lido and other large providers.

“if I want to stake because I'm not I'm non-technical, the easiest way and certainly the way that provides me the most liquidity is to use one of the dominant…”—

FORECASTS

50% by 2028 — At the current rate of new ETH entering staking, the speaker expects Ethereum could exceed 50% staked by 2028. He says that level would be detrimental to security and the asset.

“mainly because at the current rate of entry of new ETH at stake we are climbing away towards more than 50% of E at stake very likely in 2028 I…”—

Bullish Issuance Cut — The guest predicts that reducing issuance could raise ETH’s price, increase DeFi activity and leverage demand, and support adoption by improving Ethereum’s credibility. These are forecasts, not settled outcomes.

“Do you think that as a result of this EIP there will be less ETH in DeFi? I actually think it'll be the opposite…”—

Long-Term Valuation — The speaker envisions Ethereum potentially reaching a $10 trillion or $20 trillion valuation. He contrasts that possibility with a future in which Ethereum is relegated to a role like Cosmos.

“Like my vision for Ethereum is so much grander than theirs…”—

Why Ethereum Needs Stake Targeting

Jerome explains that Ethereum’s current issuance curve keeps rewarding additional staking, potentially pushing more than 50% of ETH into validators by 2028 and diluting unstaked holders.

What Actually Breaks With More ETH Staked?

Sam argues that excessive staking creates credible-neutrality risks because concentrated validators, slashing events, or hacks could make social intervention and chain rollbacks politically unavoidable.

The 50% Social Backstop

The speakers identify 50% staked as Ethereum’s social backstop, after which unstaked ETH becomes a minority and rising dilution makes correcting issuance increasingly difficult.

Ethereum’s Protocol vs. Its DeFi Economy

The discussion contrasts Ethereum’s protocol commitment to self-sovereignty and credible neutrality with the private DeFi economy built by Lido, Aave, and other intermediaries.

Is Staking Crowding Out DeFi?

Jerome says staking has become the dominant low-risk ETH strategy, diverting capital from DeFi and effectively subsidizing staking users through dilution paid by unstaked holders.

Dilution, Subsidies, and ETH Price

The participants debate whether issuance is productive yield or an internal transfer, with Jerome and Sam arguing that lower dilution could improve ETH’s value and allocation.

Would Lower Rewards Hurt or Help DeFi?

Sam predicts reduced staking subsidies could strengthen DeFi rather than shrink it, because higher ETH prices, deeper demand, and less protocol-level crowding would support new applications.

What About Tom Lee and Institutional ETH Holders?

Sam argues institutional buyers such as Tom Lee should prefer modest staking yield on substantially appreciating ETH, while Jerome says lower dilution improves ETH’s monetary credibility.

Does This Hurt Solo Stakers?

The guests acknowledge that lower rewards may hurt solo stakers, but argue the current curve pushes them out faster and that leaner issuance, anti-correlation incentives, and reduced costs could help.

Why EIP-8363 Is So Contentious

Jerome and Sam defend continuing the EIP process despite strong opposition, citing years of prior research, Ethereum’s upcoming lean roadmap, and the urgency of a gradual transition.

The Final Case for Changing Issuance

The host concludes that stake targeting follows Ethereum’s historical issuance reductions and could benefit both security and DeFi, while emphasizing the need for broader consensus before adoption.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

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