Lido Contributors’ View on EIP-8363 and Issuance Change
EIP-8363 proposes a significant change to Ethereum’s staking issuance policy. This post sets out our view on the process, the proposal itself, and the broader question of how issuance reform should be considered.
We want to be clear at the outset: Lido DAO has a direct economic interest in Ethereum staking and, although contributors do not speak for the DAO, our predominant interest as users of Ethereum and holders of ETH is the long-term security and viability of the network, and this has been reflected in the commitment that Lido has shown to be the most secure and decentralized staking solution at scale. We hope that the arguments below are evaluated on their merits.
We are not opposed to supporting potential Ethereum staking and/or issuance changes. Our concern is moving toward concrete monetary policy update proposals before the broad consequences and second and third order effects have been sufficiently explored — especially the impact on validator-set composition, resulting stake distribution, DeFi, and the long-term security and value of the network.
1. On the process
Lido contributors have tried to engage constructively in the issuance discussion. Ethereum should be able to discuss difficult monetary-policy questions openly, including whether the current issuance curve creates long-term risks.
However, our understanding was that any issuance change would first go through an effort to build broader alignment around the main properties of the proposed update: what problem is being solved, what objectives are being optimized for, what trade-offs are acceptable, and how the impact on validators, DeFi, solo stakers, and staking-market structure should be assessed.
That is not what happened here. Instead, a specific EIP with a concrete and novel issuance curve was published and then proposed for Hegota shortly before the PFI deadline, without sufficient feedback from a wide range of relevant stakeholders or enough time for the ecosystem to review the proposed changes and their effects – instead, creating both a sense of dire urgency while leaving only a few months to deliberate a proposal with broad and deep effects, which are not well understood.
Furthermore, the public engagement so far has not produced a clear, usable review record. Material concerns have been raised across different venues, but the process has not consistently collected them, summarized them fairly, or shown which ones have been resolved and which remain open. Feedback should not be treated as valid only when it appears in a preferred channel or format, and super-long (most probably AI generated) replies that can not be easily parsed should not be treated as resolving concerns simply because a response exists.
For a proposal of this scope, the process should make it easy for the ecosystem to understand which material objections have been raised, how the proposal responds to them, and which questions remain open. Otherwise, high-volume discussion can create the appearance of review without giving stakeholders a practical way to evaluate whether the concerns have actually been addressed.
For a drastic change on Ethereum’s monetary policy that is not a sufficient process. For these reasons, we hold that EIP-8363 should not be seriously considered for CFI in Hegota; instead, it should be re-approached from a broader base and with clear objectives, explicit trade-offs and well-understood consequences, a process in which we are happy to participate (and aid in the facilitation of, especially given the importance of participation by node operators, both those operating at home and professional organizations).
2. The mechanism needs deeper incentive review
EIP-8363 raises several unresolved mechanism design questions that should be answered before it is treated as a robust long-term issuance policy. The proposal has not yet shown — or explicitly acknowledged as an acceptable trade-off — how this curve affects validator composition, capture resistance, network resilience, and ETH’s long-term value under realistic staking-market costs and stakeholder preferences.
Driving real staking returns below zero
In an attempt to address the risk of extreme staking participation, EIP-8363 proposes an issuance curve that we do not believe is suitable for a permanent monetary policy. The staking rewards drop too low as stake rate grows and reach zero when total staking participation reaches 50% of all ETH supply.
The concern is not only whether Ethereum ever reaches exactly 50% (or any threshold set) staked, but that it creates a tipping point where real returns for operators (after costs, taxes) fall close to or below zero, so that decentralization-preserving, independent, higher-cost, and public-good-oriented participants are pushed out of the staking market. This incentivizes well-capitalized actors, especially those able to stake or offer staking for reasons beyond direct returns, to push the staking ratio close to that level, even temporarily, compress rewards for everyone, and force out higher-cost participants. If such a scenario materializes, Ethereum may be forced into another monetary-policy change later, although at that point the damage may already be done; that is exactly what a long-term issuance policy should try to avoid.
Any candidate issuance curve should preserve a meaningful incentive for additional participants to stake in response to concentration risk and should be reviewed rigorously against academic and empirical work on incentives, market structure, and strategic staking behavior before being treated as a robust long-term policy for Ethereum.
Lower stake does not guarantee better resilience
Reducing the staking ratio is not itself a decentralization or recovery strategy. What matters is the medium- and long-term composition of the validator set and the intermediation level of ETH in the market: who remains staking, who is discouraged from joining later, and where staked and unstaked ETH resides.
Large custodians, institutions, and professional staking platforms may continue staking even at much lower reward levels because staking is part of a broader custody, product, regulatory, or customer-retention strategy. If that happens, the ease and likelihood of a serious attack (e.g. via fork choice or attestation manipulation) may increase, and thus also the necessity of a social-slashing scenario would increase, not decrease. Putting the network in a state where social slashing becomes more likely to be necessary than otherwise means setting up a failure scenario for the network from a credible neutrality standpoint.
Lower staking participation also does not automatically reduce intermediation. If reduced rewards make solo staking and decentralized staking solutions less viable, a higher portion of remaining staked ETH may end up with custodians or other intermediated products. Moreover, a significant amount of hence unstaked ETH will likely seek forgone yield through riskier, custodial platforms as well, ultimately leading to the total amount and proportion of intermediated ETH increasing, not decreasing. In that scenario, the moral-hazard problem does not disappear; it may simply move from the staking layer to broader ETH custody.
These effects should be modeled, not assumed away. EIP-8363 has not yet shown that lowering aggregate stake leads to better validator composition, easier recovery from attacks, lower capture risk, or even better “ETH as money” under realistic market behavior.
3. Ecosystem Effects
Monetary-policy change does not happen in isolation. Issuance economics shape the kind of staking market Ethereum gets. If issuance is reduced aggressively (especially without taking into account the sustainability of participants, which is denoted in fiat, not ETH, terms) the staking market becomes a race to the bottom. Over time, that favors scale: the largest, cheapest, and best-capitalized operators are best positioned to survive, while higher-cost participants are pressured out. This will directly lead to worse client diversity, greater geographic concentration, and infrastructure centralization - all factors that erode Ethereum’s resilience.
This also affects positive externalities around staking which Ethereum currently enjoys. The current issuance rate supports a diverse ecosystem exactly because it allows participants (and in the case of delegated staking, users who select them) who believe in increasing Ethereum’s resilience and decentralization to express this preference: public goods funding (e.g. client teams), independent node operators running infrastructure in underserved geographies benefiting users around the world, security researchers, and on-chain staking protocols that invest in tooling, redundancy, and public-good work beyond the direct act of validating.
If Ethereum compresses staking economics too far, the staking market will increasingly optimize for cost over time, favoring on the long-term scale, centralization, and cost-minimized operators over diversity, redundancy, and public-good stewardship. That is a choice Ethereum can make, but it should make it explicitly and with full awareness of what gets selected out.
4. Suggested path forward
Issuance reform should be based on clear broadly agreed objectives, serious risk review, and a process that takes all major consequences into account. EIP-8363 does not yet meet that standard, and we do not believe that the time allotted for deliberation between now and Hegota CFI is sufficient to bridge this gap or to address the serious concerns around the curve proposed.
Ethereum should take seriously all risks related to staking and its monetary policy. But the response should be scoped to the problem being solved:
- If the urgent concern is excessive staking participation, a better path would be to study a narrower high-staking safeguard: define the dangerous staking range, model acceptable validator/operator composition around that range, and then evaluate targeted mechanisms to mitigate this specific risk. Issuance update may be one tool of such mechanisms but not the only one: they could include consensus layer mechanisms that introduce constraints on further stake growth, such as entry queue constraints, stake capping (naively or via something like Orbit). Such a narrower safeguard could be developed as a standalone EIP and considered, for example for I*, allowing Ethereum to address the specific excessive-staking risk without turning it into a rushed decision on the entire long-term issuance policy.
- The broader monetary-policy questions, including the “overpay for security” question, ETH’s monetary premium, and long-term supply policy, should be discussed separately, honestly, and in the spirit of finding broad community alignment. Setting a permanent monetary policy broader expertise than protocol research alone, including input from economists, financial modeling experts, DeFi stakeholders, staking operators, and solo stakers before Ethereum converges on a concrete hard-fork proposal.