SharpLink opposes Ethereum plan to end staking yield at 50%

SharpLink CEO Joseph Chalom opposed an Ethereum proposal to burn staking rewards to zero at 50% staked, warning it could raise DeFi capital costs.

"Ethereum's staking yield serves as a benchmark for interest rates across its on-chain economy," Chalom said. He argued the plan would damage one of Ethereum's main economic advantages by gradually destroying part of the rewards paid to validators.

The proposal, EIP-8361, would burn a growing percentage of consensus-layer rewards as more ETH enters staking. The burn rate reaches 100% when approximately 60.25 million ETH, about half of Ethereum's current supply, is staked. Validators would then stop receiving newly issued ETH but could continue earning transaction priority fees and maximal extractable value. The proposal includes an estimated 18-month transition intended to prevent an immediate decline in returns.

Around $35 billion is currently locked in liquid staking products, according to figures cited by Chalom. He warned that reducing issuance rewards to zero could increase the effective cost of capital and make returns negative after infrastructure expenses and other operational costs.

Zero yield could pressure DeFi collateral

Chalom said Ethereum currently offers a variable staking yield of approximately 2.75%, with transaction-related earnings accounting for only about 15% of total validator rewards, leaving operators heavily dependent on issuance. Liquid staking tokens use validator rewards to generate returns while allowing holders to deploy the underlying value across lending and other DeFi markets on Ethereum.

That pressure could cause collateral to move toward assets that continue producing yield. Independent validators and smaller staking operators may face the greatest impact because they lack the scale and additional revenue sources available to larger providers.

The proposal's authors have taken a different view. They argue that Ethereum's current issuance curve continues encouraging additional staking even after more deposits provide limited security benefits. "The current issuance curve continues offering a yield of around 1.5% even if nearly all ETH is staked," the authors wrote in the proposal. EIP-8361 remains a draft and has not been approved for inclusion in an Ethereum network upgrade.

Yield gives ETH an institutional edge

Chalom also argued that native yield is one reason institutions may choose Ethereum over Bitcoin. Bitcoin can provide price exposure and serve as a treasury reserve, but it does not produce protocol-native returns for holders.

That distinction is central to SharpLink's own strategy. The Nasdaq-listed company had staked nearly 900,000 ETH and earned more than 18,000 ETH in cumulative rewards by April. In May, it committed $100 million to a $125 million on-chain yield fund managed by Galaxy Digital, which plans to deploy capital across DeFi liquidity protocols while preserving SharpLink's broader ETH exposure.

Aave founder Stani Kulechov has also pushed back, arguing that capping rewards to zero above 50% staked introduces the kind of unpredictability that scares off serious capital. He warned that if staking rewards fall to zero, most reasons to borrow ETH within DeFi would effectively disappear.

The dispute comes as staking becomes more accessible to U.S. institutional investors. Grayscale completed the first staking-reward distribution by a U.S.-listed Ethereum exchange-traded product in January, distributing approximately $9.4 million in cash generated from staking activity through its ETHE product.

Chalom said SharpLink agrees with the proposal authors' goal of limiting excessive staking and supporting ETH scarcity. However, he argued that Ethereum should pursue that objective through its existing base-fee burn rather than changing the protocol's issuance-based reward structure.

ETH traded near $1,916 at the time of writing, with no clear price reaction directly linked to SharpLink's opposition. Debate over the proposal is expected to continue before developers consider whether it should advance toward a future network upgrade.

This article is for informational purposes only and does not constitute investment advice.