A new Ethereum proposal would gradually lower staking rewards as more ETH is staked, as some members of the blockchain's community argue that "overstaking" the network could lead to it being controlled by a handful of major exchanges and Wall Street firms should too much ETH wind up in too few hands.
Ethereum Proposal Would Lower Staking Rewards as 'Overstaking' Debate Grows
5 August 2026 - 21:31 UTC
By Jona Jaupi
The draft proposal, known as EIP-8361, would gradually burn a larger share of staking rewards as more Ether (ETH) is staked. Its authors, including Ethereum Foundation researcher Justin Drake, say that would discourage further staking once participation becomes very high. They argue it would also reduce dilution for ETH holders and address concerns about staking becoming too concentrated.
Staking involves locking up ETH to help validate transactions and secure Ethereum in return for rewards, with the network-wide annual return currently around 2.6%.
The proposal has sparked debate in the Ethereum community over whether the network already has enough ETH staked. Supporters say issuing more ETH for staking mainly benefits the biggest staking providers while diluting other ETH holders. Critics, however, say lower rewards could push even more users out of decentralized finance.
Financial products and companies that stake ETH could also be affected, including exchange-traded funds with staking features and crypto treasury companies holding the token on their balance sheets. The broader impact on demand would depend partly on whether investors value reduced dilution and greater scarcity more than the loss of staking income.
Why now?
Staking sits at the heart of Ethereum's proof-of-stake system, introduced in 2022 to replace energy-intensive mining with validators that lock up ETH to secure the network and process transactions. Currently, rewards earned by validators fall as more ETH is staked, but they never disappear completely, meaning there is always an incentive to keep staking more ETH.
Under the proposal, once about half of Ethereum's supply is staked, the network would stop issuing new ETH to discourage more staking. The proposal comes as staking continues to grow, with 41.5mn ETH, or about 34% of the total supply, currently staked.
Jason Chaskin, who works in App Enablement at the Ethereum Foundation, told Sandmark Ethereum already has enough capital securing the network.
"At today's staking level and an ETH price of $1,875, Ethereum already has about $78bn securing the network," Chaskin said. "The concern is that continuing to pay for more stake does not necessarily make Ethereum safer." Chaskin said he was speaking in a personal capacity and that his comments do not reflect the Ethereum Foundation's official views.
He explained that the proposal is based on the idea that if more ETH continues flowing to the same large exchanges, liquid staking protocols (LSPs) and professional operators, the amount of ETH staked could keep growing while control of the network becomes more concentrated.
"The proposal is trying to give staking participation a natural stopping point before the ratio becomes extremely high and difficult to reverse," Chaskin said.
Impact on staking
The proposal estimates net staking yields would fall from about 2.6% to 1.2%, although the changes would be phased in over about 18 months.
"The larger impact would be on future staking participation. Under the current curve, the staking ratio could continue moving toward nearly all available ETH," he explained. "Under the proposed curve, rewards would decline more aggressively as the staking ratio rises, and the market would eventually settle wherever the remaining yield no longer justifies the costs and risks of staking."
Chaskin added that it is impossible to predict how lower issuance would affect ETH's price. "Anyone who claims to know definitively how the ETH price would react is lying," he said. ETH is down more than 35% in 2026, trading at about $1,918 as of 20:34UTC on 5 Aug.
He said issuing less new ETH for staking could reduce dilution by putting fewer new tokens into circulation. While that could make ETH scarcer over time, there is no guarantee the market would reward that. Chaskin added that institutional investors also often value staking rewards because they make ETH easier to evaluate as an investment.
The centralization debate
One of the biggest questions is how lower staking rewards would affect large staking providers such as Coinbase and LSPs like Lido. Chaskin said there are good arguments on both sides.
Supporters say the current system encourages more ETH to be staked through the same exchanges and LSPs, giving them more control over the network.
Critics, however, say lower rewards could have the opposite effect. Exchanges such as Coinbase and Binance can afford to make less money from staking because they earn revenue from other parts of their business. Liquid staking protocols, on the other hand, depend much more on staking rewards.
"For LSPs, staking is the product. If margins become compressed enough, there is a real risk that more Ethereum stake consolidates around centralized exchanges," Chaskin said. "I do not know whether leaving rewards unchanged or reducing them creates the greater long-term centralization risk."
The proposal is still in draft form and would need broad support from Ethereum developers before it could be included in a future network upgrade. According to Chaskin, proposals for the next Ethereum upgrade are due by 6 Aug, with selections expected around 8 Nov.
If adopted, the proposal could be considered for Ethereum's Hegota upgrade, which is currently expected in mid-2027.
