Vitalik: Upcoming ETH PoS Algorithm will adopt higher staking rewards

Ethereum funder Vitalik Buterin recently posted on Github that Ethereum will use a higher staking reward metric after the deployment of Proof of Stake. 

Buterin’s proposal charts out the estimated annual returns for different amounts of validating ether.

For example, if 1 million ether is staked, a maximum amount of 181,019 new ether would be issued annually with a max return rate of 18.1%. The chart caps at a total of 134,217,728 validating ether, which is accompanied by a maximum issuance of 2,097,152 new ETH per year and a return rate of 1.56%. To be sure, the yield doesn't include revenue from transaction fees so staker revenue is likely several percentages higher.

Justin Drake, a researcher at the Ethereum Foundation, followed up with Buterin’s post on Github and explained the rationale behind the proposal.

“Targeting 2^25 ETH at stake (~32m ETH) for the long term feels about right for strong security,” wrote Drake. “In such conditions, the base inflation would be ~1% and the base return ~3.2%.”

Thus, with an ambitious 32 million ether staked, Ethereum’s 1% inflation rate will rival that of Bitcoin’s, which currently sits at 3.94%. 

So far, the proposal has received mostly positive responses on Github and Reddit after it was posted. Previously, Ethereum community members had expressed concerns around the attractiveness of Ethereum’s initial Proof of Stake reward structure when taking into the opportunity cost of lending via entities like BlockFi, which is currently offering 6.2% APR on ether deposits, and the hardware costs required to maintain a validator node.

The table below shows the rewards assumptions before the hike of the staking reward.