Why Ethereum MUST Change Its Monetary Policy | Sam Jernigan and Jerome de Tychey

Jerome de Tychey confirmed that EIP 8363, not EIP 8361, is the correct designation for the stake-targeting issuance proposal. ETH staking currently sits at roughly 30 to 33 percent of total supply, and de Tychey projects that at the current rate of inflow more than 50 percent of ETH will likely be staked by 2028. The existing issuance curve never switches off the staking incentive, offering approximately 1.5 percent yield even at 100 percent ETH staked, meaning there is no natural equilibrium and all ETH could theoretically migrate into staking, with unstaked holders funding those rewards through dilution.

EIP 8363 addresses this by introducing a burn that grows with the staking ratio, tapering rewards to zero at around 50 percent ETH staked. Current issuance is approximately 0.9 percent annually, and the proposed formula would produce closer to 0.3 percent at current staking levels, against a maximum de Tychey considers sustainable of 0.5 percent. The delta of roughly 0.4 percent translates to approximately 1 billion dollars per year at current prices, a figure he considers meaningful relative to Ethereum's market cap of a couple hundred billion dollars. He noted this would place Ethereum in a comparable dilution range to Bitcoin, which currently dilutes holders by 0.8 percent and will halve to 0.4 percent.

Sam Jernigan argued that credible neutrality is the paramount concern and that crossing 50 percent staked represents an absolute firewall for that neutrality. Once more ETH is staked than unstaked, the unstaked reserve that backstops social coordination becomes a minority, and decisions about rollbacks or bailouts would likely compromise the chain's neutrality. Jernigan cited Coinbase's staking market share at approximately 20 to 30 percent of the validator set and warned that a large centralized operator being slashed or hacked could generate social pressure for a rollback analogous to the DAO hack. He referenced the Kelp DAO incident, involving less than 5 percent of all ETH in the affected lending protocol, as an example of how even a small event was treated as a systemic crisis, and noted that researchers have used Lido specifically because they believed it would be bailed out if something went wrong.

Both speakers emphasized that delay makes the problem harder to fix. De Tychey stated that fixing issuance at 20 percent ETH staked is meaningfully easier than at 34 percent, that a gentle two-year transition path exists today, and that this path will likely not exist later. Jernigan agreed the two-year transition is already too long in his view and expressed concern that much of the needed adjustment will not happen before the lean roadmap arrives. Jernigan noted that the original designers of Ethereum proof of stake always intended to cap the validator set, with Vitalik suggesting the cap could be as low as 15 percent staked and Justin Drake and others targeting roughly 20 to 30 percent.

Jernigan rejected the claim made by guests from Aave and EtherFi that reducing issuance would cause a mass exodus of ETH from DeFi. He argued that a reduction in issuance would mechanically cause ETH price to rise, increase demand for leverage and looping, and ultimately benefit DeFi activity. He described Ethereum as having a combined fiscal and monetary policy with no separation analogous to Congress and the Federal Reserve, and projected that ETH could reach 10 to 20 trillion in total value if Ethereum maintains credibility, versus a diminished future comparable to Cosmos if it does not. De Tychey added that before proof of stake, DeFi had a healthy ecosystem with a similar total value locked, and that raw ETH is now being displaced by staking tokens, wrappers, and derivatives, replacing working money in the system.

De Tychey argued that a proposed cap on maximum dilution at 0.5 percent would give Ethereum a clear, frameable monetary policy statement comparable to Bitcoin's 21 million supply cap, while acknowledging that 0.75 percent or another number may ultimately prove better. He noted that sophisticated institutional holders are beginning to realize staking yield must be adjusted for dilution, so that if dilution is 1 percent and yield is 2 percent, the net adjusted return is only 1 percent. Tom Lee and Bitmine have purchased approximately 10 to 12 billion dollars worth of ETH in the past year and earn approximately 250 million dollars per year in staking yield, raising ethical concerns about changing the policy after the largest single ETH buyer ever purchased based on promised yield. However, de Tychey noted that Tom Lee tweeted in late May or early June that he is not opposed to an issuance change but requires large consensus and preparation, and Jernigan framed the comparison as 50 basis points to 1 percent on a 30,000 to 100,000 dollar ETH versus 2 percent on a 1,000 dollar ETH.

Jernigan identified Lido as having a representative who attends every Ethereum Foundation sponsored issuance conversation and argues against Ethereum's historical position on issuance, and warned that if staking service providers can block this change through social media presence and economic self-interest, Ethereum may already be captured. The consideration for inclusion deadline for the EIP is October 26. De Tychey predicted that if the issuance change is not addressed in this fork it will be addressed in the next one, and that not acting comes at the expense of every ETH holder.