Aave founder challenges Ethereum staking reward overhaul

Aave founder Stani Kulechov has opposed a proposed change to Ethereum’s monetary policy, warning that cutting validator rewards as staking expands could weaken decentralised finance, deter investors and undermine ether’s appeal as a productive asset.

The disputed plan, initially circulated as EIP-8361 and subsequently renumbered EIP-8363, would introduce a “tapered issuance burn”. It would destroy an increasing share of the newly issued ether allocated to validators as the proportion of staked ETH rises.

Consensus-layer issuance would effectively fall to zero when about 60.25 million ETH, equivalent to roughly half the token’s supply, is committed to staking. Validators could still receive transaction tips and income linked to maximal extractable value, but the principal source of staking returns would disappear at that threshold.

Kulechov said the proposal would not deliver its intended outcome and could prove harmful to Ethereum. He argued that the mechanism would make staking yields less predictable, reduce the viability of borrowing ETH and disrupt financial products built around staked ether.

“Ethereum should not be punished for its growth,” he said while urging developers not to advance the draft.

The intervention has widened a debate that reaches beyond validators. Ethereum staking rewards operate as a benchmark rate across decentralised finance, influencing liquid staking tokens, collateral markets, leveraged staking positions, stablecoin loans and yield-bearing investment products.

Aave, one of the largest decentralised lending systems, allows users to supply and borrow ETH and tokens representing staked ether. Lower staking income could reduce demand for strategies in which investors borrow ETH, convert it into a yield-bearing form and repeat the process to increase returns.

Kulechov warned that institutions seeking predictable income could instead move capital towards stablecoins or competing blockchain assets. Solo validators, who generally face higher operating costs than large providers, could also find participation uneconomic more quickly than professional operators.

The proposal’s six authors include Jérôme de Tychey, Justin Drake, dapplion, pintail, pa7x1 and Ladislaus von Daniels. They argue that Ethereum’s existing issuance curve continues rewarding additional staking regardless of how much ETH has already been locked.

Around 41.5 million ETH is now staked, representing roughly one-third of supply. The network’s headline staking return is about 2.6%, although rates received by users vary after operator charges, technical performance and other factors are taken into account.

The authors contend that unchecked growth could place an increasing share of Ethereum’s consensus power in the hands of exchanges, custodians, exchange-traded product providers and liquid staking platforms. They say such concentration could make the network more vulnerable to coordinated pressure and weaken the community’s ability to discipline dominant operators.

Their projections show that more than 70 million ETH could be staked by January 2028 if validator entry remains near capacity and withdrawals stay limited. That would put over 55% of supply inside the staking system.

Under the draft, the proportion of rewards burned would increase according to the total active validator balance. The 50% level is presented as a ceiling for incentives rather than a target. Its designers expect staking to stabilise below that point when returns no longer compensate marginal participants for liquidity, regulatory, slashing and operational risks.

The proposal also seeks to limit dilution for ETH owners who do not stake. Ethereum creates new coins to compensate validators, while separately destroying base transaction fees and some data fees. Reducing issuance could make total supply more likely to contract during periods of strong network activity.

An immediate introduction of the mechanism would sharply lower present staking returns and could trigger validator exits. The authors have therefore proposed an 18-month transition intended to keep initial rewards close to existing levels before gradually applying the full formula.

Critics dispute the assumption that reduced issuance would improve decentralisation. Economic research into Ethereum’s staking market has indicated that solo operators may be more sensitive to lower rewards than exchanges and liquid staking services, which can benefit from scale, additional fees and access to wider financial strategies.

That creates the possibility that cutting issuance could drive smaller operators out while allowing the lowest-cost providers to expand their market share. Forum participants have also questioned whether the proposal sufficiently accounts for Ethereum’s future security needs if the blockchain supports assets valued in the trillions of dollars.

The draft emerged close to the deadline for proposals seeking consideration in Hegotá, an Ethereum upgrade planned after Glamsterdam. Some developers said the timing left too little opportunity to examine a change of such magnitude.