Ethereum Foundation researchers want to stop creating new ETH once the network reaches about $112 billion in staked supply. The plan would gradually burn validator rewards, hitting a 100% burn rate when 60.25 million ETH is locked in staking. Right now roughly 41 million ETH sits staked, or about 34% of the total supply.

Six researchers, including Justin Drake from the Ethereum Foundation, authored the proposal before the August 6 deadline for changes to the Hegotá upgrade. The mechanism works simply: as more ETH enters staking, a larger percentage of newly issued validator rewards get burned. The burn happens at the end of each epoch, a cycle that runs every 6.4 minutes.

How the Phase-In Works

The burn wouldn't hit immediately. Developers built in an 18-month phase-in period after activation, with another six months of preparation before the upgrade launches. That gives validators roughly two years to adjust their strategies. The key thing: validators keep all transaction fees and tips. Only the newly minted ETH rewards face the burn.

Researchers estimate staking yield would stay attractive even at high participation levels, hovering around 1.5% even if most of Ethereum's supply enters staking. One author, Jérôme de Tychey, projects staked ETH could exceed 70 million by January 2028 without intervention.

The Staking Bottleneck and Concentration Risk

The network currently processes validator entries slowly. Ethereum limits daily staking entries to around 57,600 ETH to prevent sudden network changes, which creates waiting periods of six weeks or longer. About 2.5 million ETH sits in the activation queue right now, while the exit queue remains empty.

The researchers worry excessive staking could concentrate wealth among large providers and exchanges. Smaller independent validators might get squeezed out. But the proposal faces pushback from the DeFi community. Aave Labs CEO Stani Kulechov argues lower staking rewards could break ETH borrowing strategies that many users rely on. Some traders borrow ETH to purchase staked ETH and profit from the yield spread, a trade that becomes less attractive if rewards shrink.

This article is informational and does not constitute financial advice. Always conduct your own research before making investment decisions.