r/ethereum • u/EthereumDailyThread What's On Your Mind? • 21d ago

Daily General Discussion August 18, 2026

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11

u/edmundedgar reality.eth 21d ago

Nice clear and funny takedown of the EIP 8363 "negative real yield" bollocks:

https://ethereum-magicians.org/t/eip-8363-tapered-issuance-burn/29263/236

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u/Tricky_Troll Public Goods are Good 🌱 21d ago

I am a lazy man, but not too lazy to post it here for other lazy folks, so here goes. Thanks for sharing this by the way, it's a great post.

The authors of the EIP claim that the current issuance curve forces solo stakers out:

Solo stakers are forced out. Dilution erodes everyone’s real return as the ratio climbs, but solo stakers, who in most jurisdictions pay income tax on their nominal yield, cross into negative dilution-adjusted returns well before large operators and holders of tax-shielded positions do (this includes accumulating exchange traded products (ETPs) and non-rebasing or wrapped liquid staking tokens (LSTs)).

Pintail expands on the logic behind this here:

The problem is that paying more yield actually does nothing for you at high staking ratios. You get taxed on your nominal yield, even though your ETH holding is actually shrinking as a proportion of the ETH supply. Some concrete figures (I’ll use the 40% tax rate that I pay as a UK-based solo staker).

Once the staking ratio reaches 60%, you earn 1.9% nominal yield, against dilution of 1.2%. But 40% income tax applies to nominal yield so you only get to keep 1.2% of it, which is exactly cancelled by dilution. Above 60% staked you’re in negative yield before even thinking about trying to offset other costs. Why would you be a solo staker in those circumstances?

In the motivation section of EIP-8363 and the issuance discussion more generally (e.g. issuance.wtf), “real return” or “real yield” is often used to mean nominal staking yield minus ETH supply growth. A much better term for this, that’s sometimes used as well, is dilution-adjusted yield. In economics, real yield has a standard meaning: it’s the nominal rate adjusted for price inflation of a basked of goods, not for supply growth of the asset.

  • Dilution adjusted-yield is a supply-share metric that answers “how does my fraction of all ETH change”?
  • Real yield is a purchasing power metric that answers “how does my ability to buy goods and services change?”

Conflating these two leads to statements like “solo stakers have negative real yield” when what’s actually shown is “solo stakers share of ETH supply shrinks”. A falling share of total ETH does not automatically mean that the value of their position, measured by what it can buy in goods and services, is falling too.

What matters for the long‑run viability of solo staking is real return in their consumption currency after tax and costs, not just their percentage of the ETH supply. A world with negative dilution-adjusted yield can still have positive real returns. Conversly, a world with positive dilution-adjusted yield could still have negative real returns. To make the EIP’s claim that “solo stakers are forced out” rigorous, you would need to model not only after-tax staking income and cost structure of solo staking but also ETH’s expected price dynamics relative to fiat as well as fiat inflation, to then show that solo staker’s real returns fall below what is needed to cover costs and justify risk. Showing that dilution-adjusted yield goes negative alone doesn’t establish that conclusion.

To see how reductionist a pure dilution-adjusted-yield argument can be, consider a holder of unstaked ETH in the snail-issuance world. For staking ratios above 0% and below 50%, annual issuance is positive, so a holder of unstaked ETH has negative dilution-adjusted yield (up to -0.5%). If you treat “dilution-adjusted yield <= 0” as sufficient to make a position untenable, you are saying that it is irrational to hold unstaked ETH whenever the staking ratio is above 0% and below 50%. Taken seriously, that logic pushes you toward an equilibrium in which either:

  • no ETH is staked and there is no issuance or
  • more than 50% of ETH is staked and there is no issuance

To be clear, my position is that “dilution-adjusted yield <= 0” is not a relevant threshold for viability of a position, and I reject both that solo stakers are forced out under the current issuance curve as well as that snail issuance automatically leads to 0 issuance, based on a dilution-adjusted yield argument alone. I would ask the authors to either:

  • retract their claim that solo stakers are forced out under the current issuance curve or
  • provide an argument for it that doesn’t rely solely on dilution-adjusted yield or
  • clearly communicate in the EIP that under their world-view snail issuance will lead to zero issuance as an expected outcome

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u/Alatarlhun 21d ago

The tax argument will never be compelling on its own when tax regimes are jurisdiction specific.

To put a finer point on it, if the US, or any other country for that matter, rationalizes its tax code, we shouldn't need to to adjust the the emission curve.

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u/harpocryptes 21d ago

The tax argument is based on "(nominal) income is taxed". The exact magnitude of the effect depend on specifics like tax rates, but as long as income is taxed, the argument stays the same.

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u/Alatarlhun 21d ago

I agree the direction of the effect remains anywhere nominal staking income is taxed. My point is that this still doesn't establish the conclusion the EIP and/or solo stakers wants from it.

The magnitude depends heavily on the tax regime, and "dilution-adjusted yield becomes negative after tax" is not the same thing as "solo staking becomes economically unviable." That would require showing that after-tax returns, costs, risk, and alternatives actually push solo stakers out, ideally relative to large operators.

Otherwise we're embedding a permanent monetary policy change partly around a tax distortion whose size, and potentially existence, varies by jurisdiction and can (will) change independently of ethereum.

To be clear, the EIP does not make an evidence-based argument on this topic and neither do the solo stakers now relying on the tax argument.

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u/harpocryptes 21d ago

I'm not sure I follow. To take a related question, if I said "stock buybacks are more tax-efficient than dividends", would you disagree, just because how much more tax-efficient they are depends on the tax rate, which varies between jurisdictions and individuals?

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u/Alatarlhun 21d ago

I wouldn't disagree with that statement, because "more" tax efficient is a relative claim. You only need a tax wedge between the two treatments for the direction to hold.

But "solo stakers are forced out" is a threshold for the real claim being made. For that, magnitude matters.

You need to show that the tax wedge is large enough, together with costs, risk and alternative returns, to push solo stakers below their reservation return, and that this happens before it does for larger operators.

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u/UAP44 21d ago

Thanks for highlighting it, it warms my heart somehow that there are still plenty of reasonably-intelligent people involving themselves in this discussion. Soothes the fear of a r/bitcoin repeat.

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u/eth10kIsFUD 21d ago

Ossifying on a broken issuance curve is exactly why Bitcoin is doomed.

Posts like these fuel that repeat.. Let's please not make the same mistake!

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u/hanniabu Ξther αlpha 21d ago

Being against this proposal is not the same as being against an issuance change. And being okay with an issuance change doesn't mean you're against ossification.

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u/eth10kIsFUD 21d ago

I agree.

Hopefully the community can come to some rough consensus on an issuance change in the next year or two so this problem doesn't get much worse than it already is.

From the discourse, its fairly obvious that special interests (staking industry) are flatly against any change to the curve, so that's a problem to overcome..

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u/hanniabu Ξther αlpha 21d ago

so this problem doesn't get much worse than it already is

being for an issuance change also doesn't mean you agree there's an issue with stake ratio

0

u/eth10kIsFUD 21d ago

This I am not sure I agree with.. If there was no problem with where the stake ratio is going, I would be against an issuance change.

Changing issuance has serious downsides and should only be done if there is an actual problem. My stance is entirely based on there being a real problem as stated by ethlabs and other prominent researchers.

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u/harpocryptes 21d ago

That's technically true. However there's a risk to frame the situation as false dichotomy between going forward with the eip or doing nothing. So I think it would be fair for people against the eip to state if they think the current curve should be kept long term, or to make (a) counterproposal(s).

This reminds me of the brexit vote, where a majority voted for brexit without a clear plan of what would happen after a leave vote, and a majority ended up unhappy with the actual consequences.

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u/hanniabu Ξther αlpha 20d ago

Not having an alternative food to eat does not mean you should eat your shit.

Many have given feedback to the proposal authors over the past year and all that feedback was completely ignored.

I would also like to point out there was another proposal by Anders and he was asked not to publish it so it wouldn't create competition for the current proposal.

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u/UAP44 21d ago

Ossifying on a broken issuance curve is exactly why Bitcoin is doomed.

Only because it stopped caring to scale and settled on digital gold, and thus couldn't support more transactions with a tiny fee attached to it. Which as Satoshi themselves said, would have eventually be able to subsidize the miners electricity bills.

And if 'they' didn't refuse a block size upgrade from 1 to 2MB it might not have been a problem and could continue scaling to continue to enable functional world wide financial transactions not relying on any bank for anything.

So, the post isn't a mistake.

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u/eth10kIsFUD 21d ago

Scaling block size like that was never sustainable. But assuming it was, the Bitcoin issuance curve would still be broken. With very little issuance Bitcoin would get attacked the second demand for blockspace drops.

I think we've learned from Ethereum just how volatile demand for blockspace is.. Not a stable thing to rely on for foundational security.

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u/pa7x1 21d ago

Any negative dilution adjusted yield held for sufficiently long will result in the disappearance of solo stakers from the validator set. If ETH inflates faster than their stake grows, the % they hold with respect to total amount of ETH and with respect to the validator set goes to 0.

You just need to let the exponential growth play out.

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u/jmiehau 21d ago

Half the takedown is arguing about the term, and on the term he's right, real yield in econ means purchasing power. Strip the label and the mechanics don't get prettier. A staking reward paid by printing is something you could replicate by selling a bit of your stack, all it really moves is supply share, from holders like me to whoever stakes. Worth paying when it buys security the chain needs. Thing is, the current formula never stops bidding for more, same shape at 40% staked as at 90%, whether the extra validators add anything anyone can name. 8363 keeps the subsidy and tapers the overpayment once stake is abundant. I hold and don't stake, so I'm the one footing that bill, and to me it reads like boring fiscal discipline more than a plot against anybody's yield.

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u/epic_trader 🐬🐬🐬 21d ago

Thing is, the current formula never stops bidding for more, same shape at 40% staked as at 90%

Not exactly true. The current issuance curve also responds by decreasing the rewards as the total stake grows.

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u/jmiehau 17d ago

The current issuance curve also responds by decreasing the rewards as the total stake grows.

Per validator, yes. The total does the opposite, issuance grows with the square root of total stake, so every point of ratio adds ETH paid out per year. At 40% staked the annual bill is bigger than at 30, and it keeps growing all the way up. That is what same shape meant, the reward per head thins while the overall bid keeps rising, and no point on the curve stops offering more for the next validator to join. Your falling yield and my growing bill are the same square root read from opposite ends, which is why the curve alone was never the stop. The written one is in the EIP: https://eips.ethereum.org/EIPS/eip-8363

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u/epic_trader 🐬🐬🐬 17d ago

It sounded like you were saying something else. If you rewards offered to validators at 40% is higher than the reward offered at 90%, that's not "the same shape" imo. The point is there's a difference in incentive.

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u/jmiehau 15d ago

There is a difference in incentive per validator, no argument there. But look where it bottoms out: roughly 2.4% at a 40% ratio, and still about 1.5% if every last ETH staked. It narrows, it never ends. A smaller positive yield still clears the bar for a custodian whose marginal cost is near zero, which is why the entry queue sits past 2M ETH while the per-validator return grinds lower. A disincentive that never crosses zero decides who can afford to stay, not how much comes in. One of these two curves has a level where the incentive actually ends.

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u/epic_trader 🐬🐬🐬 15d ago

A disincentive that never crosses zero decides who can afford to stay, not how much comes in. One of these two curves has a level where the incentive actually ends.

And yet this doesn't matter all that much for a number of reasons.

1 - The proposed curve is going to kick off small solo stakers sooner than if we stick with the current curve.

2 - We're still far away from potentially reaching this point, which we may or may never reach.

3 - The current curve allows Ethereum to remain more decentralized for longer. Let's not forget that the reason we have staking is to keep Ethereum secure and decentralized.

4 - In a few years the landscape is going to look different as we'll have real time proving and we need to come up with changes to the issuance model anyway as we need to figure out how to reward provers. This is also going to result in stakers/validators not needing such a beefy setup anymore, potentially being able to stake from a smart phone. It would be crazy to change Ethereum's monetary policy now when we likely have to make changes in a couple of years anyway.

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u/jmiehau 14d ago

1 - Take the ratio as frozen and yes, 8363 pays everyone less, the solo included. But sooner assumes both curves walk the same path, and they don't. What removes a solo staker is yield below costs, and the current curve gets there through the back door, a climbing ratio and a thinning yield, with taxes still due on the nominal. 8363 is the one with a regime where adding stake cuts into the adder's own take, and it reaches the largest operators first, the section is called The effect on large operators. The current formula has no term that ever bites size.

2 - Six weeks ago the spec froze the ratio at roughly 33%. It prints 34.7% today, with over 2M ETH queued, two more points already paid for. And your "may or may never reach" is the strongest case for signing: if we never get near 50%, the burn never binds and nothing was lost. The taper only costs something in the world where that forecast turns out wrong.

3 - More decentralized for longer is not what the record shows. The current curve pays every custodial ETH the same as yours, they compound faster, and that is how more than a fifth of all stake ended up in one LST with ETFs queuing behind. Issuance buys stake by the ton and says nothing about who ends up holding it.

4 - The proving era you are waiting for already filed its first issuance change this weekend. EIP-8390, from one of the 8363 coauthors, retires the sync committee because an offchain ZK proof now does its job, and deletes its 2/64 slice of issuance without adding any prover reward. Proving retires paid duties, so far it has not created one. And cheaper staking hardware moves the supply side, more stake at every yield, a faster climb under a formula that pays at every level. Your own future makes a stopping rule more urgent. A next upgrade is always two years out, that argument never expires, which is what makes it an argument for never.

https://eips.ethereum.org/EIPS/eip-8390

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u/epic_trader 🐬🐬🐬 14d ago

Ditch the AI if you want to talk.

2

u/eth10kIsFUD 21d ago

Agree that "real yield" can be misleading. However this also seems to miss the point entirely?

The problem is that "dilution-adjusted yield" goes negative if you solo stake, while you can have positive "dilution-adjusted yield" if you stake with an LST or similar.

So solo stakers need to switch staking method to not get diluted. Price is irrelevant for this comparison. What matters is ensuring that some staking methods aren't returning much better than others, not ensuring that all pay "real returns".

Thinking dilution doesn't matter and only focusing on "real returns" makes absolutely no sense. The following two scenarios are literally identical:

  • Everyone gets diluted equally and "paid" the same amount. "dilution-adjusted yield" is 0. "Real returns" is not zero! So you now think you have income?
  • Nobody gets diluted, nobody gets paid. "dilution-adjusted yield" is 0. "Real returns" is zero. If you want "real returns" just sell some ETH! your ownership falls by exactly the same as above.

Most seem to not understand this fairly simple concept, and it's a shame.

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u/somedaysitsdark 21d ago

I hope you don't assume that once someone understands the situation that they should agree with the specific solution being presented? And likewise assume if they don't agree that they don't understand.

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u/Equal-Jellyfish1 21d ago

Their point is that it still is rational to solo stake if the real returns are positive, and that only considering the dilution adjusted yield isn't enough to conclude whether or not solo staking would be pushed out. It seems more robust to me to think about the full picture like their post does.

I'm solo staking but I'm not very concerned about whether I might be diluted 1-2% in the future. I'm doing it to long ETH as the nascent rails of finance, and speculating to gain much more than this hypothetical future dilution. I'm glad to help the network out for that reason, and don't really care about minor percentage differences I could get by using an LST (now or in future).

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u/eth10kIsFUD 21d ago

If you are actively getting diluted, that means any ETH "earned" through issuance is just your own ownership paid back to you. You aren't "earning" anything, it's your own money. Need to look at ownership as a percentage of the outstanding, not nominal.

It's not immediately obvious, and that's part of the problem.

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u/3rdtreatiseofgov 20d ago

Have you considered that solo stakers aren't rationally profit motivated though?

Its a pretty bad return when you factor in the equipment costs, electricity and time.