Ethereum Improvement Proposal 8361 would cut validators' staking yield by 54%, from 2.6% to about 1.2%, phased in over 18 months. The cut would flip the leveraged ETH borrowing loop that Aave, Morpho and other lending markets rely on from a source of income into a daily cost. Aave founder Stani Kulechov warns it removes one of DeFi's largest sources of ETH borrowing demand, while ether.fi's Mike Silagadze warns of a possible capital exodus from staking-linked DeFi.
Ethereum's proposed EIP-8361 would cut validators' staking yield by 54%, from 2.6% to about 1.2%, phased in over 18 months. The mechanism is a burn: validators lose a larger share of their consensus reward as the total amount of staked ETH climbs, and the burned ETH disappears from supply. At the proposal's saturation point of 60.25 million ETH staked, roughly half of supply, the burn would cancel the issuance a correctly performing validator would otherwise earn.
That reward funds liquid staking tokens, leveraged staking loops, and lending markets from Aave to Pendle that set their rates around it. Cutting the base forces every layer above to reprice.
The leveraged ETH loop turns from income to cost
A user deposits wstETH as staking collateral on Aave, borrows WETH against it, converts that WETH into more staked ETH, and deposits it again — Aave's E-Mode setting makes the loop capital-efficient by treating stETH and WETH as correlated assets. Galaxy Research has noted that debt grows faster than collateral once WETH borrowing costs exceed staking yield, raising the odds of liquidation.
At today's 2.6% yield and a WETH borrow rate near 1.5%, the unlevered spread runs about 1.1 percentage points positive. Cut the yield to 1.2%, and the spread turns negative by roughly 0.3 points before any leverage applies. At five times leverage, a position that used to add income starts to cost money every day it stays open.
Kulechov said the change removes one of DeFi's largest recurring sources of demand for ETH borrowing: if loopers unwind and repay WETH debt, utilization on Aave, Morpho and Spark falls, and lender APYs compress with it.
Silagadze warns of a wider DeFi retreat
Silagadze went further, arguing the proposal threatens staking-linked DeFi broadly and confidence in Ethereum's ability to set its own monetary policy. He said stETH and rETH headline yields would fall alongside consensus issuance. His claim that seven of the top ten DeFi protocols would face a capital exodus is his own assessment, not an independently modeled outcome.
Critics call the rollout rushed; a rebuttal pushes back
EIP-8361 remains an open Core EIP awaiting editor review, and its authors posted it to the Ethereum Magicians forum roughly 48 hours before the Hegotá Proposed for Inclusion deadline. One forum participant called that window inadequate for a monetary-policy proposal of this scale.
Jérôme de Tychey rejected that framing: Proposed for Inclusion opens debate, and Ethereum's issuance debate has run since 2023, giving the market roughly two years to adjust once the phase-in is added to normal upgrade scheduling. He also noted that if the validator entry queue stays saturated, staked ETH could pass 70 million, above 55% of supply, by Jan. 1, 2028.
In the bull case, loopers unwind fast enough to rebuild a smaller positive spread, and lower issuance draws buyers who value scarcity over yield. In the bear case, the cut lands before borrowing costs adjust, loops turn unprofitable, and capital rotates into stablecoins and other chains.
Source: CryptoSlate
Trading involves risk.
Risk Disclaimer
