As a proposal emerged in the Ethereum (ETH) community to burn part of validator rewards to curb the rise in issuance, Aave founder Stani Kulechov (스타니 쿨레초프) publicly voiced opposition. He argued that cutting rewards could deepen centralisation by pushing individual stakers out of the market rather than easing supply concentration.

According to blockchain media outlet Coinpost on Aug. 5, the focus of the controversy is a new proposal, EIP-8361. The proposal would gradually burn part of issuance rewards paid to validators to slow the pace of growth in new Ethereum supply.

Currently, validators’ annual total yield is about 2.862 percent, combining issuance rewards and maximal extractable value (MEV). If the proposal is fully applied, the yield would fall to 1.476 percent, a drop of about 48 percent. Discussions are based on prior research by researcher pa7x1 and an improvement proposal by Anders Elowsson.

The backdrop to the proposal includes concerns about Ethereum supply concentration. As the share of staking has steadily increased recently, criticism has persisted that some institutions, including exchanges and spot exchange-traded fund (ETF) issuers, could amass an excessive amount of Ethereum supply.

But Kulechov countered that cutting rewards could instead backfire. He argued that if validator rewards effectively approach zero, profitability-focused individual validators are likely to leave the market, while ETF issuers or exchanges could continue staking for business operations and regulatory compliance. As a result, the institutional share could rise further and decentralisation could weaken, he said.

Tax issues were also raised as a key point of contention. Citing an example of an individually operated 32 ETH validator, Kulechov explained that under the proposal the structure could be that validators first recognise all rewards and then burn a portion. In that case, the taxable amount would remain unchanged while the rewards actually received could fall. If tax authorities in each country do not recognise burned rewards as losses, even a properly run validator could effectively incur losses, he said.

He also stressed that Ethereum staking yields have served as a benchmark interest rate for the market, beyond the level of rewards themselves. Staking yields have been used as a comparison standard for spot ETF investment, DeFi lending and various yield products. If yields fall sharply, it would be difficult to rule out the possibility that investment demand shifts to other digital assets or dollar-based financial products, he said.

Kulechov said that before pushing ahead with the proposal, proponents should first present specific data analysing national tax treatment and the impact of lower yields on investment demand. He also proposed reviewing a plan to set a floor so yields do not fall below a certain level, rather than lowering rewards excessively.

The debate is expanding into a discussion over balancing Ethereum issuance management, maintaining decentralisation and inflows of institutional capital. As concerns are raised that adjusting rewards to prevent supply concentration could instead lead to individual validator exits and higher tax burdens, the community is expected to continue discussions on the scale of reward cuts, how to apply them and whether to guarantee a minimum yield.