Ethereum staking climbs to 34% as proposal targets validator rewards and ETH treasury firm yields

The share of ETH supply staked has climbed to 34%, up from about 29% at the start of the year. With staked supply reaching one-third of total Ethereum (ETH), there have been questions regarding the sustainability of native yield on Ethereum.

On Aug. 4, researchers including Ethereum Foundation's Justin Drake filed EIP-8361, a "tapered issuance burn" that destroys a growing share of validator rewards as the staking ratio rises. The burn hits 100% at half of the current supply, zeroing out net issuance for validators past that point.

At today's roughly one-third staking ratio, the authors' own modeling puts annual consensus yield falling from about 2.6% to 1.2%, phased in over 18 months rather than all at once.

The current issuance mode never fully switches off the marginal incentive to stake more, and the authors argue that pulls in centralized operators, exchanges and custodians at the expense of solo validators and non-staking holders who get diluted regardless.

While this would impact all stakeholders, ETH treasury companies like Bitmine (BMNR) and Sharplink (SBET) stand to be among the most directly affected. At current staking levels, revenue would be cut by half, with further worsening as the ratio climbs toward 50%. 

Ethereum treasury firms are unique to their Bitcoin counterparts precisely because of the native yield that can be generated through staking and securing the Ethereum network. Should these incentives be reduced, investors may find less reason to pay a premium for ETH treasury vehicles over holding staked ETH, narrowing the structural case that has differentiated ETH digital asset treasuries from BTC DATs to begin with.

This is an excerpt from The Block's Data & Insights newsletter. Dig into the numbers making up the industry's most thought-provoking trends.