Ethereum: EIP-8363 on staking removed from the Hegotá update

Braking before the hard fork. The authors of EIP-8363 have withdrawn their proposal from Ethereum's upcoming Hegotá update. The text planned to gradually reduce the rewards paid to validators when the proportion of ETH placed in staking increases.

This withdrawal does not mark the abandonment of the project. Jérôme de Tychey, president of Ethereum France and co-author of the text, believes that the ETH issuance policy deserves a separate debate rather than a decision taken during the preparation of a technical update. Explanations

Ethereum removes lower staking rewards from Hegotá

The EIP-8363 offered a mechanism called Tapered Issuance Burn. Its principle consisted of destroying an increasing share of the rewards allocated to validators when the volume of ETH placed in staking increases. The reduction was to be spread over approximately eighteen months.

With nearly 34% of the supply locked up at the time of its presentation, the annual yield would have fallen from around 2.6% to 1.2%. Near 60.25 million ETH staked, or approximately half of the supply, all of the new rewards involved would have been burned.

The authors fear that remuneration maintained at too high a level will gradually push the majority of ETH towards staking. A growing part of the supply would then find itself in the hands of exchange platforms, depositories and large specialized services.

According to them, this concentration could weaken the neutrality of Ethereum and marginalize independent validators. It would also favor tokens representing ETH placed in staking to the detriment of classic ETH, used as currency and guarantee in decentralized finance.

The 50% threshold was not presented as an objective. It was simply intended to mark the level at which the protocol ceases to financially encourage the arrival of new validators.

Ethereum Monetary Policy Demands Separate Debate

The proposal quickly exceeded 200 comments on the Ethereum Magicians forum. Several companies and developers have challenged its assumptions, but also the method used to reach a decision.

A general drop in yields could particularly affect independent validators before large operators, whose costs are distributed among thousands of machines. It could also reduce the revenues of liquid staking services and change the functioning of many DeFi products built around these yields.

The general director of SharpLink, Joseph Chalom, estimated that the text risked weakening one of the main advantages of Ethereum. Stani Kulechov, founder of Aave, also criticized the proposal before welcoming its withdrawal from the Hegotá process.

Jérôme de Tychey now recognizes that the selection of the functions of a hard fork is not the appropriate framework for deciding such a broad question. The authors, however, maintain their diagnosis and wish to organize a process devoted exclusively to the issuance of ETH.

The discussions are expected to examine five topics: network security, economic consequences for the industry, the form of the mechanism, the composition of the validator group and the impact on independent stakers. Lido has offered to participate in this initiative, the schedule of which includes several forums and workshops leading up to EthCC in April.