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Ethereum staking reward cut proposal could turn DeFi loops unprofitable
The EIP-8361 plan would reduce validator yield from 2.6% to about 1.2% over 18 months, with the burned portion tied to rising staked ETH potentially flipping leveraged staking spreads negative.
A proposed change to Ethereum staking rewards, outlined in Ethereum Improvement Proposal 8361, would lower validators' yield from 2.6% to about 1.2% through an 18 month phase-in, a 54% reduction that also introduces a burn mechanism. Under the proposal, validators would lose a larger share of their consensus reward as total staked ETH grows, and the burned ETH would be removed from supply, according to CryptoSlate.
CryptoSlate said the burn is designed to scale with staked participation, reaching a saturation point where at 60.25 million ETH staked, the burn would cancel out the consensus issuance that a correctly performing validator would otherwise earn. The outlet also noted that priority fees and MEV are outside the burn, estimated at up to 0.20% today, against consensus issuance that covers at least 93% of current staking yield.
The proposed reduction could reverberate through DeFi strategies that depend on predictable consensus yield, including liquid staking tokens like stETH, leveraged staking loops that borrow against liquid staked ETH, and lending markets such as Aave and Pendle that set rates off staking yields. CryptoSlate cited warnings from Aave founder Stani Kulechov and ether.fi's Mike Silagadze that near-zero or unpredictable consensus yield could weaken institutional ETH demand, reduce ETH borrowing, and hurt confidence in Ethereum's monetary policy, particularly for loop-based strategies.
CryptoSlate further described how leveraged loops can shift from profit to loss when staking yield drops relative to borrowing costs. It pointed to a scenario where with a 2.6% consensus yield and a WETH borrow rate near 1.5%, the unlevered spread is about 1.1 percentage points positive, but when yield falls to 1.2% the spread turns negative by roughly 0.3 points before leverage is applied, meaning a position with five times leverage could cost money each day it remains open, per the outlet. The article also said Galaxy Research flagged that debt can grow faster than collateral if borrowing costs exceed staking yield, increasing liquidation risk, and Kulechov added that the change could reduce a recurring source of demand for ETH borrowing, lowering utilization on platforms like Aave, Morpho, and Spark and compressing lender APYs.
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