Researchers at the Ethereum Foundation are proposing a significant change in that network's monetary policy, which would modify the reward for participating in staking the protocol. 

Researchers Ansgar Dietrichs and Caspar Schwarz-Schilling suggested “seriously” considering the adoption of a new issuance curve on Ethereum , which, they claim, should be integrated into the next upgrade, Electra.  

As they explain, the proposal is given because the current broadcast could lead to problems "and raises several concerns." This is due to the growing concentration of ETH in staking pools, such as Lido or Coinbase, for example. 

It happens that when the transition from the Proof of Work (PoW) consensus algorithm to the Proof of Stake (PoS) was made, the sum of 32 ETH was raised as a requirement for anyone who wanted to become a validator of the Ethereum network, which represented a economic barrier for people who did not have such an amount. 

This led to the formation of staking pools, which were responsible for breaking that barrier. This, through the grouping of investors, who deposit the amount of ether required by the staking platform to be able to be validators (and obtain the profits that this implies). The pool, in exchange, returns synthetic tokens, such as stETH, cbETH and rETH, to name a few, which would give a monetary representation of the staked ethers, in order to continue using the money. 

The researchers' alert is due to the fact that the incentives for people to stake have resulted in the real supply of ETH being concentrated in the staking pools and, instead, synthetic tokens are used for the operations of the Ethereum network.  

Indeed, currently staking pools are the largest holders of ether. An example is Lido, the liquid staking platform that controls 30% of the ETH supply, according to estimates by researchers Dietrichs and Schwarz.  

That figure translates to just over 9.62 million ether currently in the Lido liquid staking pool. An equivalent to approximately USD 31.9 billion, according to DeFiLlama  calculations.

Researchers at the Ethereum Foundation warn that an excessive increase in the participation of staking pools in the network will bring challenges and concerns.  

For example, governance and centralization risks, as well as market manipulation and Ethereum's synthetic tokens becoming the de facto currency used for the day-to-day operations of that network. 

The solution?

In this order of ideas, Dietrichs and Schwarz propose a modification of Ethereum's monetary policy by reducing the incentive for new participants, applying a new formula to calculate the issuance of new ethers. 

In other words, the researchers propose reducing the incentives for staking, that is, the payments that people receive for participating in the network and in the issuance of ETH. As they indicate, this would be done “so as not to overpay for network  security ” and get rid of the aforementioned risks.

They explain that the simplest way to reduce such incentives is by applying an emission curve designed towards infinity, but in a negative way. This, they claim, “practically guarantees that staking participation will not grow beyond a specific range.” 

“Focusing would imply moving to an issuance curve that economically guarantees an upper limit on participation in staking, mitigating all concerns,” say the researchers, who warn that leaving the curve unchanged “entails numerous disadvantages.” 

Repudiation Among Ethereans

The proposal to change the monetary policy of Ethereum presented by researchers Dietrichs and Schwarz has received various criticisms among users and enthusiasts of that ecosystem.  

One of the developers behind one of the Ethereum improvement proposals, EIP-1559, Eric.eth, criticized the researchers' proposal. In his opinion, this is a “general disdain” for the work they have done for more than a decade, in order to establish that ETH is better money.  

It is worth remembering that in the past there have been Ethereum updates such as token burning that have changed the network's monetary policy to make it “deflationary.” This variability in monetary policy can have harmful effects on investors. 

“It's worrying,” the developer said. “I will fight this idea with anything I have,” he stated in a message broadcast on X on March 29. 

One of ETH's oldest investors, James Spediacci, said the proposal “looks like a coordinated attack on Ethereum” as it seeks to adjust the ETH issuance curve and change monetary policy “when the Securities and Exchange Commission (SEC) “The United States currently has Ethereum under the microscope.”  

This, remembering that the US SEC is analyzing 7 applications to issue an exchange-traded fund (ETF) based on the spot ETH price. A financial instrument that could encourage institutional demand for the second most valued blockchain on the market.  

US SEC is in a period of reviewing the applications of BlackRock, Fidelity, Bitwise and four other companies interested in launching their own ether ETFs.  

The SEC must decide between the end of May and the beginning of June whether or not to authorize the issuance and marketing of ETH ETFs on the stock exchange. For some specialists, there is a chance that the requests will ultimately be rejected.