Ethereum researchers are considering how to make staking progressively less attractive just as major financial institutions appear to be warming to investment products built around its yield.

Six researchers, including the Ethereum Foundation’s Justin Drake, have proposed burning an increasing share of the rewards paid to validators as more ETH enters staking. Under the plan, net issuance from Ethereum’s consensus layer would fall to zero once roughly half of the cryptocurrency’s total supply had been staked.

The proposal, provisionally numbered EIP-8361 and named Tapered Issuance Burn, would not eliminate every source of validator income. Transaction fees and maximum extractable value, or MEV, would remain available. What it seeks to remove is the permanent yield floor that continues to draw new validators even when their additional contribution to network security may be marginal.

That debate is emerging at an awkward moment. Intesa Sanpaolo, Italy’s largest banking group, has sharply reduced one of its most prominent Bitcoin ETF positions while tripling its investment in BlackRock’s staked Ethereum product. Other firms, including Jane Street, have made broadly similar changes.

The apparent institutional appetite for yield-bearing Ether products therefore rests, at least partly, on a source of income that Ethereum’s own researchers are now discussing whether to curtail.

Key points

• EIP-8361 would burn a progressively larger share of validator rewards as Ethereum’s staking ratio rises.
• At around 60.25 million ETH staked, equivalent to 50% of the supply, net consensus-layer issuance would fall to zero.
• The change would be phased in over 18 months to reduce the risk of a sudden validator exodus.
• Intesa Sanpaolo cut its IBIT holding by 93.7%, leaving it with 40,723 shares at the end of the second quarter.
• The bank tripled its position in the iShares Staked Ethereum Trust and opened a put position covering 500,000 IBIT shares.
• Jane Street made a similar adjustment as US spot Bitcoin ETFs suffered a record $4.5 billion in net outflows during June.

Burning issuance as staking approaches 50%

Around 40 million ETH, or roughly one-third of the total supply, is currently locked in staking. Ethereum’s consensus layer issues approximately 1.05 million ETH a year to reward validators, producing a yield of about 2.62%. Income from transaction fees and MEV adds only around another 0.20%.

The authors of EIP-8361 argue that the current issuance curve has a structural flaw. Although staking returns decline as more ETH is deposited, they never disappear entirely. Even at very high participation levels, the yield would retain a floor of around 1.5%.

That leaves a continuing financial incentive to stake additional capital, regardless of whether the extra validators provide a meaningful security benefit. In the researchers’ view, there comes a point at which further growth may bring more concentration and operational complexity without making Ethereum materially safer.

EIP-8361 would apply a deduction whenever a validator completes an assigned duty, including submitting an attestation, proposing a block or participating in a synchronisation committee. The deducted ETH would be permanently destroyed rather than redistributed.

The proportion burned would rise alongside the total amount of ETH staked. Once staking reached approximately 60.25 million ETH, or 50% of the supply, the burn rate on newly issued consensus rewards would reach 100%.

The 50% level is intended as an incentive ceiling rather than a target. The researchers do not necessarily expect the network to reach it. Instead, they anticipate that staking would settle at a lower equilibrium once the remaining return no longer compensated investors for liquidity constraints, slashing exposure, operational costs and regulatory risk.

Applied immediately, the mechanism would reduce the current net consensus-layer yield from around 2.6% to approximately 1.2%. Such a sudden cut could prompt validators to withdraw, particularly those operating on thin margins. The proposed parameters would therefore be introduced gradually over 18 months.

Fees and MEV would remain outside the burn mechanism. Validators would still earn them, meaning staking income would not necessarily fall to zero even if net consensus issuance did. The distinction matters, especially for large operators with sophisticated block-building infrastructure and greater access to MEV opportunities.

A monetary reform with consequences for DeFi

The proposal is not simply about reducing ETH issuance. Its authors are also concerned about who controls staked Ether and what happens when staking derivatives begin to displace the underlying asset.

As the staking ratio rises, more ETH may accumulate in the hands of exchanges, custodians, exchange-traded funds and large liquid-staking protocols. The researchers also fear that tokens representing staked ETH, such as stETH, could gradually replace native ETH as the principal form of collateral across decentralised finance.

Large staking operators would, in theory, be among the first to feel the effect of tapered issuance. Adding more validators would give them a larger share of a reward pool that was itself becoming smaller. Scale would not lose all its advantages, however. MEV income could continue to favour operators with superior infrastructure, order flow and capital.

Critics see a different set of risks. Lower rewards may weaken the economic security of Ethereum and force out validators that are especially sensitive to yield. Solo operators, who cannot spread infrastructure and compliance costs across thousands of validators, could be hit harder than institutional providers.

Aave Labs founder Stani Kulechov has warned that pushing staking returns towards zero could make many ETH borrowing strategies unviable. A significant share of borrowed Ether is used to acquire staked ETH or liquid-staking tokens, with the strategy depending on staking income remaining above borrowing costs.

If that spread disappears, leveraged staking positions may no longer make economic sense. Demand for ETH loans could fall, while the role of liquid-staking tokens as collateral across DeFi could become less secure.

Others see monetary benefits. Zach Pandl, head of research at Grayscale, has argued that lower issuance may support the value of ETH by reducing dilution. From that perspective, weaker staking income could be offset by a scarcer asset and a potentially stronger monetary premium.

The proposal therefore cuts across several parts of Ethereum at once: network security, validator economics, DeFi lending, liquid-staking markets and ETH’s broader monetary policy. It is not a narrow technical adjustment, even if its implementation can be expressed as a change to the reward curve.

Its timing has added another layer of controversy. The draft was published on 4 August, two days before the 6 August deadline for submitting pull requests seeking consideration in the Hegotá upgrade.

EIP-8361 remains a draft. It would require a hard fork and has not been selected for inclusion in Hegotá. A preliminary implementation reportedly already exists for the Prysm consensus client, but testing remains incomplete.

Intesa Sanpaolo cuts IBIT while increasing staked Ether exposure

While Ethereum developers debate whether the protocol is paying validators too much, Intesa Sanpaolo has moved more capital into an investment product designed to capture staking rewards.

According to the bank’s latest Form 13F, Intesa reduced its holding in BlackRock’s iShares Bitcoin Trust, or IBIT, by 93.7% during the second quarter. It reported 40,723 shares worth $1.36 million as of 30 June, down from 646,809 shares three months earlier.

Its disclosed call-option position also fell sharply. The number of underlying IBIT shares covered by those calls declined by 99.3%, from 2.5 million to just 18,000.

At the same time, the filing revealed a new put position covering 500,000 IBIT shares. Put options generally rise in value when the underlying asset falls, making the position look defensive. It could represent downside protection, a bearish trade or one component of a more complicated options structure.

The filing alone cannot establish which interpretation is correct.

Meanwhile, Intesa’s holding in the iShares Staked Ethereum Trust rose from 116,200 to 349,600 shares, giving the position a reported value of $7.1 million. Its exposure to the Bitwise Solana Staking ETF moved in the opposite direction, falling from 2,817 shares to only seven.

The shift does not amount to a complete departure from Bitcoin. Intesa continued to hold 3.47 million shares of the ARK 21Shares Bitcoin ETF, valued at approximately $67.6 million. It remained the bank’s largest disclosed crypto ETF position.

Intesa also retained its $14.4 million position in the Grayscale XRP Trust and opened a much smaller holding, worth $293,190, in the Morgan Stanley Bitcoin Trust.

The figures point to selective portfolio rebalancing rather than a wholesale rejection of Bitcoin. The bank cut its exposure to one Bitcoin product, retained a much larger position in another and increased its allocation to a staked Ether fund.

There is another caveat. Form 13F disclosures cover long positions in securities listed in the United States, but they do not present a complete picture of short exposure or complex options strategies. They may also include assets managed on behalf of clients rather than positions held directly on the bank’s own balance sheet.

Intesa’s net view on Bitcoin and Ethereum therefore remains difficult to determine from the filing alone.

Is Wall Street rotating towards Ethereum?

Intesa Sanpaolo is not the only large financial firm to have reduced reported IBIT exposure while adding to Ethereum funds.

Jane Street cut its holding of IBIT shares by 71% during the first quarter. Over the same period, the trading firm almost doubled its position in BlackRock’s iShares Ethereum Trust, or ETHA, to 11.1 million shares.

It also increased its investment in the Fidelity Ethereum Fund from $3.1 million to $43.6 million.

Jane Street’s figures require particular caution. As a major market maker, the company holds some securities to provide liquidity or execute strategies on behalf of clients. Its reported portfolio should not automatically be interpreted as a direct bet on Ethereum outperforming Bitcoin.

Still, the ability to generate staking income may be part of the attraction. BlackRock’s staked Ethereum fund is designed to receive network rewards on at least part of its Ether holdings. Spot Bitcoin ETFs cannot produce a comparable protocol-level yield.

That makes Ether a rather different institutional product. Investors can gain exposure to its market price while also receiving income generated by participation in Ethereum’s proof-of-stake system.

The contradiction is difficult to miss. Institutional investors may be moving towards staked Ethereum products because of their yield just as Ethereum researchers are trying to remove the permanent issuance floor underpinning that yield.

Lower staking rewards would not necessarily make such products unattractive. Their economics would depend on ETH’s price, fee income, MEV, fund expenses and the proportion of assets actively staked. Yet the investment case could shift away from straightforward yield generation and towards scarcity, monetary policy and long-term exposure to the Ethereum ecosystem.

Bitcoin ETF flows provide some context for the institutional repositioning. US spot Bitcoin funds recorded substantial net outflows during much of the second quarter. In June alone, investors withdrew a record $4.5 billion, making it the worst month since the products were launched.

More second-quarter institutional filings are expected before the 14 August deadline. They should offer a clearer view of whether Intesa Sanpaolo’s changes were an isolated portfolio adjustment or an early sign of a broader shift.

For now, the market is moving in two directions at once. Traditional finance is discovering the appeal of Ether as a yield-bearing asset, while Ethereum is questioning whether that yield should remain available indefinitely. The outcome may determine not only how much ETH is staked, but also what institutions believe they are buying when they invest in it.