A new Ethereum improvement proposal, EIP-8361, would slash the network's staking yield from roughly 2.6% to about 1.2% — a 54% cut phased in over 18 months. The mechanism burns a larger share of consensus rewards as the total amount of staked ETH rises, with issuance effectively canceled once 60.25 million ETH (about half the supply) is staked. Priority fees and MEV are left untouched, making the remaining yield more variable.
How the burn would work
The proposal ties the yield reduction directly to staking participation. As more ETH gets staked, a bigger portion of consensus rewards is burned instead of paid out. At the 60.25 million ETH threshold, the burn cancels all new issuance. That means the headline staking yield would drop by more than half, but the actual return for stakers could swing depending on network activity and tips.
The leveraged staking math
Right now, the unlevered spread between staking yield and the cost to borrow ETH on Aave is +1.1 percentage points (2.6% yield minus 1.5% borrow cost). Under the full EIP-8361 curve, that spread flips to -0.3 percentage points (1.2% yield minus 1.5% borrow cost). At 5x leverage, the trade becomes a daily loss. That's a direct hit to the popular leveraged ETH loop — depositing wstETH as collateral, borrowing WETH, converting to more staked ETH, and redepositing.
Kulechov and Silagadze sound alarms
Aave founder Stani Kulechov warned that near-zero consensus yield could weaken institutional demand for ETH, discourage solo staking, and reduce ETH borrowing and ETH-denominated DeFi activity. He said the proposal removes one of DeFi's largest recurring sources of demand for ETH borrowing. Mike Silagadze, founder of ether.fi, argued the proposal threatens staking-linked DeFi broadly and confidence in Ethereum's monetary policy. He claimed seven of the top ten DeFi protocols would face a capital exodus — though that's his own assessment, not an independently modeled outcome.
Ripple effects across protocols
If leveraged staking positions unwind, borrowing utilization on Aave, Morpho, and Spark would fall, compressing lender APYs. Borrowing costs would need to drop well below current levels for a 1.2% yield to make the trade worthwhile again. Liquid staking tokens like stETH and rETH would see their headline yields fall; restaking tokens like weETH would rely more on incentive programs. Pendle would have to reprice its PT and YT markets around the lower floating rate. Automated ETH vaults running loop strategies would need to cut leverage or take on more risk. Curve pools supporting LST redemptions could see thinner secondary liquidity if loopers exit in size. Solo stakers face fixed operating costs while rewards shrink.
The proposal is now under discussion in the Ethereum community. No timeline for implementation has been set.
