Unchained - Should Ethereum Really Burn Its Staking Yield to Zero?

Episode Date: August 12, 2026

📢 Bits + Bips has its own channel now — full episodes here: https://www.youtube.com/@Bitsandbips  A new Ethereum proposal would burn staking issuance to zero once roughly half the supply is staked, and the community had about 48 hours to respond. Austin Campbell, Chris Perkins, and Seth Ginns of Franklin Crypto discuss whether it is a necessary check on runaway staking or an academic overreach that ignores how institutions actually think about the network. Hosts: Austin Campbell - Host of Bits + Bips, Founder of Zero Knowledge Group, and Adjunct Professor at NYU Stern Chris Perkins - Co-host of Bits + Bips and Head of Franklin Crypto Guest: Seth Ginns - Chief Investment Officer of Franklin Crypto This clip is from a longer conversation on Ethereum's staking yield fight. Full episode here: https://youtu.be/MhhJAIhkgVM?si=hqg5R4b3rVBNdNlJ  We go live every Monday - subscribe to catch it live. Sponsor: Visit 1inch.com to swap tokenized securities, crypto and more. Simple. Secure. Self-custodial. Whatever asset you’re buying - swap it at 1inch.com. Chapters: 🔥 00:20 Austin on the proposal to burn ETH issuance to zero, and who wrote it ⏱️ 02:02 Why a 48-hour comment window has critics saying the process is broken 🎓 03:33 Seth calls the proposal an academic push that skipped real coordination 🍳 04:48 Chris predicts the plan fails because the EF does not control Ethereum 💴 07:13 Chris's yen carry trade warning about messing with ETH's risk-free rate ⚖️ 09:10 Austin's verdict: 48 hours is too short no matter how the vote goes 🗣️ 13:57 Dapplion's pushback from inside the camp: 'you can't bribe me like this' 💰 15:23 Seth defends the $10 billion in institutional ETH flows Learn more about your ad choices. Visit megaphone.fm/adchoices

You're listening to a brief segment from one of the Bits and Bips episodes this week. The full show is now only available on its own dedicated Bits and Bips channels. So be sure to go to X, YouTube, and your favorite podcast platform and search for Bits plus sign Bips, spelled BIPS, and subscribe. There is a proposal. Correct me if I'm wrong. It's like BIP 8361, I believe. Two, something right around there. Three.

Three. Thank you. Which is basically this. It's bringing Ethereum staking rewards down significantly, possibly to zero, where what it does is burns a rising share of validator rewards as the staking ratio climbs, hitting a 100% burn rate at 60 and a quarter million, ETH, or roughly half of the supply. Authors of this included Justin Drake of the Ethereum Foundation and ETHCC comb founder Jerome DeTaichi.

pronouncing that wrong. Phases in over about 18 months and burns only newly issued ETH. This is not transaction fees or tips. Right now, about 41.5 million ETH is staked, 34% of supply with 2.5 million more in the queue. So here's the case for. Under the current curve, yield never drops below 1.5% even with all ETH staked. the incentive to stake never switches off. Where does it stop? It doesn't. The entry queue is saturated at

max churn, adding 1.75 mil per month. At the current rate, by Jan 1, 2028, over 55% of supply will be staked. And past a point, more state makes Ethereum less secure. The social layer loses its fork backstop against a captured validator set. So that is the argument. There's 48 hours to comment on the monetary policy change. Mike Silligodze has been complaining about that one being, this is a very rapid thing. Seven of the top 10 protocols could face an exodus.

This is a dramatic loss of confidence and governance and stability to be done this way. There's also a statement that this is one of the most resisted Ethereum protocols or proposals ever. That was from Stanley at Ave. Basically, the EF's ivory tower academic approach will not solve these challenges. It's disconnected from the builders in the trenches. Let's talk about the institutional side.

So Joseph Shalom, Sharplink CEO, former guest. Sharplink opposes it. Validators earn roughly 2.75% newly created Eith. Tips only account for 15% of staking, fields, validators would be asked to go on securing Ethereum to earn no issuance for it, living on transaction tips alone, being proposed at a moment of tremendous momentum for Ethereum. So I'm going to pause there because there's more that's happened over the next 12 hours. But Seth, I want to take a breath and ask you, without getting into the details of the ongoing

fight, on an initial proposal basis, how are you looking at this? How are you seeing at this? Is this solving a real problem or is this academic theorizing? I mean, look, I'll be honest, I didn't see this problem as something that was front and center going into the proposal. So I kind of go to the latter view, which is that this is a little bit of an academic push. One that, look, there's some very big stakeholders around ETH now in a post. that world where the largest holder of ETH is BitMine. You really need to work in a very coordinated way. There should be a broad lead-up discussion to fundamental changes like this.

And this came as a surprise broadly. to the community. Now, I think the pushback would be, well, this is the proposal. Let's talk about it now. But it seems a little bit like a solution looking for a problem, at least right now. But Chris, I know you have some strong views around this as well.

I think this is great because I think the EF is about to eat its own cooking. You know, when people, get all crazy about crops and this and that. And, you know, for people who don't know crops is Ethereum is really like leaning into what differentiates it, which is its decentralization. It's million validators, censorship resistance. And I do think that that is Ethereum's edge. But the EF is not a centralizing force. And we're seeing other nonprofits coming along as well. And I think what you're going to see here is this is going to fail. Why is it going to fail? Because the community, the applications that are accruing a lot of value and have the potential to probably accrue more value.

because many of us believe the fat protocol thesis is not where that value accru is going to be. So they're eating their own cooking in a sense because they don't control Ethereum. And that's a good thing. And I don't think they want to. Now, as you start looking at it, probably the most concerning part of this is that if there's a perception that they have control of the network and they're control in a direction, then you don't want to recreate the Fed here. It's just not recreating the Fed where you have a bunch of people, you know, go into a spokefill, room and come out and tell you what the rates are. That's not how it's supposed to work,

right? This should be a community-driven environment. Now, the other thing that I'm glad is starting to bubble up, the light bulb has not gone out yet, but it's coming. And that's that interest rates can rule the world. Yield rates rule the world. Why do we care so much about the Fed? It drives everything in the economy. Ethereum's yield rate. You invented something called Caesar, like, you know, disclaimer disclosure. You know, this is a So I was a big part of that, right? It's risk-free rate, right? But that rate drives the economy.

And like these ecosystems, these blockchains, these layer ones, their economies. Those rates matter. And you can't have people manipulating them or messing with them. Then you get LIBOR. So I'm all about, I'm not saying that, I'm not saying that the EF is manipulating anything, by the way. But I'm just saying this is what we don't. We don't want that. So any type of change needs to be open and transparent, gradual, brought about by the community

because when you mess with the risk-free rate of any blockchain, it controls the economy. Let's listen to one more second because I go off on this stuff. You know, if you have no yield, you become the Yen-Carrie trade potentially. You're that source that people are going to borrow and sell and they're going to go to another ecosystem that has that yield. Do you want Ethereum to become the source of the N-Carry trade? Something to think about. I realize it's not a perfect, it's not exactly a perfect analogy, but it's close, right? Yield is too high. Everyone's going to stake. That's not good either, right? So you have to have a Goldilocks interest rate, interest rate policy, and it should be

dynamic. It's just super important. I'm glad that this is actually coming out. I think it's really healthy for the ecosystem and not just Ethereum, hyperliquid, Solana, all these different yields. I think they're going to be much more in focus because as the big institutions come on board, they're wired through a fixed income lens. All right. Sorry for my long soliloquy. Couldn't help it. I love the little tradfai dig in there.

The manipulation is LIBOR. Well, it did, right? Like, we have to learn the lessons of the past. Like, we're trying to make it better. The one thing that I've always been obsessed with about, like, just crypto is that you have fixed income markets are $145 trillion in size. They're based on interest rates. Interest rates swaps are $500 trillion market, notional. And this is one area of exploration that we just haven't seen yet in crypto, but fixed income is staring us in the face. And I think

as we approach the institutionalization of crypto, that market's poised to finally do something. I think that's one of the biggest issues. But you're seeing like all the sensitivity. Who's opposing it, the institutions, the guys who understand fixed income, you know, the guys with the background from BlackRock, you know, our good friend, Joseph, et cetera. So super fascinating. I think the whole dialogue is very healthy, actually, for the entire community. Yeah, if I'm looking at this and trying to figure out what do I think of it? What do I think of the proposal? One thing I would hit on is even if I was inclined to vote yes for it, 48 hours is way too short.

So I would be a no right now purely from the basis of you don't make a change this big without making sure that everybody material is relatively on board. Because your nightmare scenario is it passes with yes at like 51% and then some very big holders just start unrelentingly dumping and pulling out. Like the last goddamn thing you want is like a day later after that vote, Larry think comes out and goes, you know, I like Avalanche better, right? You have a big problem if that happens because the whole thesis was institutional adoption. So, Chris, to your point, if you alienate those people with the process, you have a really big issue. Two, I think there's sort of been

a glossing over in crypto, to your point, Chris earlier, because there haven't been fixed income people in there, of how intricate all this stuff is and how much it matters. matters. And I think there are some core fundamental assumptions that, quite frankly, have never been really challenged. Like, one of the ones I occasionally ask people that I haven't truly gotten a good answer for is how does economic security and proof of stake work if we're really putting all of the real world assets on Ethereum? Like, the net value of those things is hundreds of trillions of dollars. Are you arguing to be ETH will be worth hundreds of trillions of, because like then your transaction fees or insanity. And this is why a lot of Tradfai systems ultimately ground down to

some form of proof of authority or proof of trust is the cost of economic security done economically is very, very high if we're doing this. And so I think this is starting to become shades of that debate because if I can earn 3.5 sitting at a U.S. government money market fund and you're going to cut Eath yields to zero, I've got to have a really strong forward belief in the economic value of Eith to own that over the money market fund. And Chris, to your point, there's some subset of people who are going to borrow E, or sorry, loan ETH borrow dollars and just put it in a money market fund. And that, as we know, does this. So one of the things I think the EFF is forcibly coming into contact with here that they may not have expected is global macro. Yeah. This is a

beauty of what you just said, like, what, what better a convergence theme? Now, Ethereum's yield is competing with treasury yield. It's competing with the yen, the yen yield. Like, it's, this is the next step in the evolution of our markets. And, and that's why I welcome this. I think it's a great time to have this debate. And, and also, I think there's another interesting part of this proposal that I think was mistaken was lumping a number of concepts together that could have been disaggregated. Because for instance, something like, hey, we don't want more than X percentage staked because that does kill our ability to have like liquid trading and usage does not also imply and we need to just cut the base staking rate at the exact same time. Right? Because like

hypothetical proposal here, right, that I'll throw out for the Ethereum community. Our staking rate is going to be pegged to Sofer, right, just to match it to the U.S. dollar rate. But, But if more than, I don't know, two-thirds of ETH, whatever threshold you want is staked, it just starts degrading by X percent every day until we get back below two-thirds. Austin, real or nominal? Okay. I think you have to do all of these things in nominal terms, right? How does one define real yielded Eiff, Chris?

Well, it's pretty obvious. You go to ultrasound money and you can see the burn, right? And there is an inflation rate associated with the supply. So I do think that it's definitely something you can calculate. Okay, but nobody is using ETH as a unit of account to buy real goods. So like, I did for NFTs. That was a bygone error. This is a purely self-referential argument.

You know it. I think we need to use nominal until it's a unit of account. All right, fair enough. So, all right. Second part of this topic that I wanted to raise. We've had 12 hours of like escalating arguments. Dap Lion, a co-author said, how to publicly admit that the network has been captured by a small group of interested parties

is holding ETH still economically aligned with the upside of the network. So tax ETH holders billions so these select parties can make hundreds. of millions. You can't bribe me like this. It goes on. What if your ETH makes 1.7% APR and inflates by 1.7%? Right. There's your real yield. Right. The real yield is zero. And so I wonder if you, there's, excuse me, I wonder if users weighing on this EIP consider today's reality or a five to 10 year horizon. And where I am going to throw the ball back as we're talking about this, is, if we're talking about a five to 10 year horizon, is any part of this proposal, even in the top 10 most relevant things to make a projection on that basis? Right. Or are we having a really

narrow academic fight? Because look, I'm a dumb trader and practitioner. But to me, the number one question of ETH's future value is, are you getting people issuing assets on ETH and using them on I think you're like four alarm fire is the fact that DTCC went with Stella. I also think there's a question of like, was it was it in the interest of ETH holders to have over $10 billion come into ETH over the last year through the broader set of DATs and before that the ETS? The institutional wave of flows has been unambiguously positive for the network broadly. So to dismiss that cohort of owners as being capture seems to me to be a little bit of a narrow take on what's happened with the ETH network.

But to hear a longer term question, I mean, we need to have activity increasing. We need to have real-world use cases. Let's talk about rather than constantly dealing with tokenomic tweaks and we're doing tokenomic changes in an environment where there still isn't a lot of activity. Like let's think about ways to drive that crossover activity. Let's think about ways of bringing the traditional financial infrastructure onto ETH, to your point about DTCCC. Let's think about ways to drive that top line rather than constantly tweaking the tokenomics to try to get the token moving higher.

All right. Amen. Amen. He's totally right. We need activity. You want to increase the burn? Drive more transaction fees, right? That's what you need. If you like this segment, please like, subscribe, and tune in every Monday at 4.30 p.m. Eastern Time. I'm Austin Campbell, the host, bips and bips, along with my friends Rahm Al-Awalia and Chris Perkins and our slate of exceptional guests. Every week, we're going to discuss macro, crypto, crypto, and the collision of worlds, covering topics that move markets and shape the financial landscape. $540 million. That's how much concentrated liquidity sat idle in a given week in the first half of this year. About 30% of the defy TVL, if you're wondering.

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