Proposal to Deeply Change Ethereum’s Structure Gathers Backlash: What’s the Truth?

A proposal to slow the release of Ethereum (ETH) coins was put forward by Ethereum Foundation (EF) researchers Ansgar Dietrichs and Caspar Schwarz-Schilling earlier this year.

The proposal aimed to reduce incentives for new stakers who secure the network by locking their cryptocurrencies on the blockchain.

Newly produced ETHs constitute a significant portion of the rewards such investors expect as staking returns.

Researchers argued that the current number of stakers is sufficient to provide effective security for the blockchain. They expressed concern that further growth in participation could lead to the unintended dominance of fast-growing third-party staking platforms such as Lido. A secondary benefit of the proposed changes, according to the researchers, would be to strengthen ETH as a form of money because the total supply of a cryptocurrency will not increase as quickly, effectively reducing ETH’s inflation rate.

However, the proposal faced resistance from some community members who questioned the necessity of changing Ethereum’s tokenomics. Critics also argue that the Ethereum Foundation could have an outsized influence on code upgrades on the decentralized network.

The proposal, submitted in February, proposes setting blockchain parameters so that annual new ETH issuance does not exceed 0.4%, which would be a significant decrease from the current effective limit of 1.5%. Researchers believe this change will prevent unnecessary dilution for ETH investors, as the current issuance rate “expands ETH holders beyond what is necessary for security.” They estimate that the proposal would reduce ETH staking returns by almost a third.

Some Ethereum community members argue that the proposal was rushed without enough time for outside feedback. “If something isn’t broken, don’t try to fix it,” Viktor Bunin, a protocol expert at Coinbase Cloud, commented on a social media platform.

EF researchers have expressed concern that ETH coins, as well as Liquid Staking Tokens (LSTs) such as Lido’s stETH token, which is the most traded asset on Ethereum, could eventually replace the blockchain’s native currency as the de facto money of the network. This could potentially make the entire system less secure.

*This is not investment advice.