Why Ethereum MUST Change Its Monetary Policy | Sam Jernigan and Jerome de Tychey

Ethereum may be paying too much to secure itself, and the consequences could extend far beyond a little extra ETH issuance. Jerome de Tychey, co-author of EIP-8363, and Sam Jernigan join David Hoffman to make the case for stake targeting, a proposal designed to stop Ethereum’s staking ratio from climbing indefinitely. They debate what happens if more than half of ETH becomes staked, whether today’s issuance threatens credible neutrality, why staking may be crowding out DeFi, what lower rewards could mean for ETH’s monetary premium, and whether solo stakers and institutional holders ultimately win or lose from the change. Subscribe for more conversations on Ethereum’s monetary policy and future. --- 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium --- BANKLESS SPONSOR TOOLS: 🔓 NEAR | TRADE CONFIDENTIALLY, GET 20% BACK https://bankless.cc/near-pod 🔑 BITKEY | GET 10% OFF USE CODE: BANKLESS | #bitkeypartner https://bankless.cc/bitkey 📊 BITGET | TOKENIZED STOCKS 2.0 https://bankless.cc/bitget-stocks 🎯 THE DEFI REPORT | ONCHAIN INSIGHTS https://thedefireport.io/bankless 👑 BANKLESS CONTENT MCP https://www.bankless.com/premium --- TIMESTAMPS 0:00 Why Ethereum Needs Stake Targeting 4:27 What Actually Breaks With More ETH Staked? 9:54 The 50% Social Backstop 18:24 Ethereum’s Protocol vs. Its DeFi Economy 21:30 Is Staking Crowding Out DeFi? 26:19 Dilution, Subsidies, and ETH Price 35:46 Would Lower Rewards Hurt or Help DeFi? 49:48 What About Tom Lee and Institutional ETH Holders? 57:02 Does This Hurt Solo Stakers? 1:09:01 Why EIP-8363 Is So Contentious 1:18:10 The Final Case for Changing Issuance --- RESOURCES Jerome de Tychey https://x.com/jdetychey Sam Jernigan https://x.com/macrosam --- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

• 0:02Speaker 00

  Bankless Nation, the debate around the EIP that changes ETH issuance policy is not over. On this episode, I have Jerome Day-Tre, founder of the ETHCC conference and also one of the core authors and proponents behind EIP 8361, the stake targeting EIP. Jerome, welcome to Bankless.

• 0:21Speaker 01

  Thank you so much for having me. I'm also a solo staker and the official number is 8363 now. So if you're looking for the

• 0:30Speaker 00

  8363.

• 0:31Speaker 01

  Yeah.

• 0:32Speaker 00

  Also joining Jerome is Sam. Sam Drenigan, he is the ETH maxi of Wall Street, the CIO of Lafayette Macro and CEO of Lafayette Digital Acquisition Corp., probably one of the louder proponents on Twitter about stake targeting. Sam, welcome back to Bankless.

• 0:48Speaker 02

  Nice to be back.

• 0:49Speaker 00

  Jerome, let me just start with you, since you're the core author and you really introduced this EIP into the zeitgeist and has caused much of a gnashing of teeth and debates in the Ethereum community. What is the problem that we are trying to solve here? Why is this EIP important and urgent?

• 1:07Speaker 01

  Yeah, so there's many, many sub-questions in what you just asked. So let me, let me try to be as, as short as possible. First, it's not, it's not an old problem. We, we knew about this issue for a few years now. Actually, since before even the lunch of the proof of stake, we knew that the curve that we were using is, would probably have to be recalibrated at some point. The debates, the initial debate really started in late 2023 and had a first intense debate in early 2024. And then it was rekindled in late 2025. And now is the time to have this discussion again.

• 1:48Speaker 01

  Mainly because at the current rate of entry of new ETH at stake, we are climbing away towards more than 50% of ETH at stake, very likely in 2028. I hope the, the time will tell and, and prove me wrong, but apparently on the current trend is clearly where we are going. And the problem with having so much ETH at stake is that it's detrimental to our security and it's also detrimental to ETH, the asset itself. So let's, let's take a small step back. The current, the current curve that is rewarding the validators for securing the network is,

• 2:31Speaker 01

  very simply put, the more ETH at stake, the more ETH is printed. There is an incentive to stake that never really switches off. Even at 100% of ETH at stake, which will be like the limits, max limit, of course, like 100% of ETH at stake, we are about 1.5% yield. There's potentially no equilibrium possible for the staking market. Like all ETH will want to go at stake at some point. And for the silent majority, the ETH that are not yet at stake, well, they are paying for staking through dilution. So that's what we want to address. And this EIP is the, the, the conclusion of many years of research

• 3:15Speaker 01

  and also of the urgency of making this change now. Otherwise, the more we wait, the more painful it will be.

• 3:24Speaker 01

  So we are introducing an offshoot, a guarantee that the market will find an equilibrium, a burn that grows with the staking ratio. The more ETH at stake, the more a portion of the reward are burnt. So the rewards will taper to zero at around the half of the ETH at stake. And in practice, the market will of course stop well before that.

• 3:47Speaker 01

  Actually, where the staking, the staking market will find its equilibrium. And, and whenever the participation ends up being low, which is very unlikely, the, the curve still pays very well. So it guarantees that we have a good security for the network. So it's also sitting on a research like a minimum viable issuance, making sure that we are not overpaying for our security. And something I like to stress from the get-go is that we have a history of not overpaying for our security and making changes in our monetary policy oftentimes at Ethereum, but always in the same direction downwards, like issuing less, diluting less our holders. And that's precisely why we're having this discussion right now.

• 4:27Speaker 00

  I think a lot of what you said, Jerome, checks out to me. And also at the same time, in order to change the monetary policy around Ether, you need to have overwhelming evidence that this is not just something in pursuit of a better outcome, but something like meaningfully catastrophic if we do not do this. And so maybe, Sam, I'll throw this to you about like, you know, some of the things that Jerome said is like, you know, like we're approaching 100% of ETH staked. You know, in vanilla ETH holders are paying with dilution, 50, yeah. But like, but the incentive, as you said, the incentive always goes and approaches 100% of total stake.

• 5:10Speaker 00

  I think I need to hear the answer of just like, so what? Like, okay, we hit 100% ETH staked in the worst case scenario. You know, the worst case scenario ETH holders are losing 2.5% nominally on their ETH in the year. So what? Like, is it, is that really that bad? Like, how would you argue that this EIP is, is addressing a very large issue?

• 5:35Speaker 02

  Right. Thank you again for, for having me and including me. I do think this is a very important topic. And before we even really get to the monetary case for it, or the, you know, go as far as to say 100%, you know, the, the curve stops or goes to zero at 50% for a reason. And that's because we have to maintain above, above any other priority, Ethereum's credible neutrality. And when you cross above that threshold and arguably before, unfortunately. But I, and I think that's something we should get into.

• 6:15Speaker 02

  I mean, arguably, the, the risk to Ethereum's credible neutrality is well short of 50%, but we feel like that is the absolute firewall. Once you go past that point, you have more basically ETH that is staked into the system, into the consensus mechanism than outside of it. And in the event of, say, a catastrophic slashing or a smart contract bug or a hack, you know, I think a lot of people and a lot of debate seems to be coming from, or focused on the LSTs, but you could argue that something like a Coinbase might be even a bigger kind of potential risk.

• 6:57Speaker 02

  And even today, you know, I would, I would ask you, you know, if, let's say, I think Coinbase's market share for staking is probably 20 or 30% if you include kind of all the buckets there. And if, you know, if you have, let's say, you know, 75, 80, 90% of the validator set that is staked and they have 30% of all ETH, right, or 30% market share, right, of that, of that,

• 7:27Speaker 02

  of the validator set. And if they were slashed or if they were hacked or there was a smart contract bug of some sort, my guess is that there would be significant calls, right, to, to roll back that event, similar to what we saw with the DAO hack back in Ethereum's earliest days. And I think that it should be a very cautionary tale.

• 7:51Speaker 02

  What just happened with Kelp DAO, this de minimisly small pool of ETH. Again, it was an LST, but it could have just as well been a, some sort of a, a pool centralized operator as compared to an LST. And I will just tell you, I was very surprised to hear large players in our space that viewed that, that as a systemic event for the lending protocol that was involved in that incident. And I was telling people that were asking me at the time, no, this is not a systemic event. It's, you know, the, the total amount of ETH in that lending protocol is less than 5% of all ETH. That's not a material amount.

• 8:36Speaker 02

  And yet people thought it was a systemic amount. And so that is not, I mean, it's a, it's a insignificant microcosm of the type of risks that you're opening up the core consensus mechanism to. If you're talking about going up to 50%, we're at roughly 30, 33%, I believe now. You know, if you're talking about going above 50%, well, it's, it's kind of done, right? You have, moral hazard has consumed the chain at any point above, in my opinion. Again, probably before, unfortunately, but as a firewall, 50%. Once you go above that point, you have more ETH that is in the system than in outside.

• 9:21Speaker 02

  And when it comes to, you know, the ultimate decision is the social layer, right? And at the end of the day, if you have more, more capital that's in the system and subject to moral hazard than outside and a decision comes down to whether or not to roll back that event, right, to undo it.

• 9:39Speaker 02

  Well, I think unfortunately, it would likely be a, a decision that meaningfully hurts Ethereum's credible neutrality.

• 9:51Speaker 02

  I think that that's just the one kind of very obvious point.

• 9:54Speaker 01

  Yeah, there's a ton of moral hazard coming from a big pandorous box where lots of things get intertwined between the consensus layer and the execution layer. Sticking the everybody that mingle into DeFi, they make the case for, oh, are we going to roll this back? Or are we going to change this? A much harder decision to make beyond the more purely credibility neutrality problems like at what stage do we consider that the network has been captured? And we start to censor transactions and so on. But if we look at 34%, what is, what concrete breaks at 50, 55, 60% that is not really broken at 34? Very simply put, it's our last line of defense.

• 10:40Speaker 01

  The ultimate backstop for Ethereum is on code. It's the capacity to have social coordination backed by unstaked if and past the half of the supply being stake. That reserve is just a minority and the drift just compounds, of course, because the more if is at stake, the more everyone else gets deluded. The more people feel forced to stake just to keep up. And raw if gets displaced by staking tokens and wrappers and sticking the everybody else. And it's, it's just replacing the working money in the whole system. But here is, here is something I'd like to underline here. What really breaks is also our ability to fix it. The correction itself gets more painful with every point of issue that is climbing, coming up.

• 11:24Speaker 01

  So fixing the, fixing the issuance when we have a 20% of if at stake is much easier than fixing it when we are at 34. So I wish we had those discussions like four years ago. And it's going to be meaningfully harder if we have this discussion in two years from now. So today we can run a transition that starts at today's yield, give or take, and gives everyone roughly two years to adapt. And that's a gentle path that exists now and will likely not exist later. Also, without even talking about lean and the roadmap for Ethereum to change its duty for, for the validators and so on. That will imply also a change in the issuance.

• 12:06Speaker 01

  So we have the opportunity right now to do this change, but also to make sure that we pick a new issuance and a new monetary policy that we can stick to for the next five to 10 years at least.

• 12:19Speaker 02

  So I, I think, I think Jerome hit on a couple of points I'd like to just elaborate. One on this issue of capture.

• 12:28Speaker 02

  I will not support and Wall Street will not build on a chain that has been captured by a cartel of small interests. And so maintaining, maintaining Ethereum's credible neutrality by preventing the validator set from being captured by a small group of actors is absolutely critical. We're wasting our time here if we genuinely, if we allow that to happen. I think that, so that is, that's absolutely paramount, whether it's censoring transactions or again, simply, you know, JP Morgan or Wells Fargo or Bank of America are not going to build on a chain that has been captured by a small group of people.

• 13:10Speaker 02

  So this is what uniquely separates Ethereum from every other proof of stake chain. I really only took on this, this direction in my career, my life with the explicit understanding that Ethereum was committed to capping the validator set at somewhere between, I mean, Vitalik has said his lowest 15%. You know, I think now we're basically allowing it to go all the way to 50. You know, I think Justin, for a very long time and most of Dankr and many of the other, the original designers of proof of stake always had somewhere in the name, in the range of 20 to 30%. We can and should talk about why we're in this situation with the current issuance curve, which all of the designers of the proof of stake

• 13:55Speaker 02

  mechanism for Ethereum believe was a mistake, that it was always meant to prevent

• 14:04Speaker 02

  the validator set from growing much larger again than this kind of 30% or even, I think they used to say 30 million. But that was when the total amount of ETH was closer to 100 million rather than where it is today.

• 14:18Speaker 02

  But it was always supposed to cap the validator set. And as Jerome alluded to, and I think that this is actually something we should talk about because, you know, I think while the researchers and a lot of the, the protocol teams maybe understand, you know, the kind teams understand that the lean roadmap implies much less issuance is required. I do not think many people outside of that very small group of people understand that. And certainly that has not been something that you've heard the opponents of the issuance change acknowledge. So I think that that's worth maybe even drilling on a little bit, a little bit further because this is going to happen either. This is going to have to happen either way.

• 15:01Speaker 02

  I don't think it will happen if we don't stop it now.

• 15:06Speaker 02

  If we can't, and this, by the way, this transition period is already far too long for me. I think we run the risk of, of between now and when lean happens and when the next issuance change needs to occur, that much of it won't happen. And even with the current, this two-year time period is, is too long, in my opinion. But I, so I think it's important to understand for, for those that are against this, that this is already a, a compromise.

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• 17:08Speaker 00

  and has run over five years on main net with zero downtime. Near.com is simply the best way to be on-chain and be in control. Get 20% of your trading fees back using the Bankless link in the show notes, not investment advice. Bankless Nation, we've built something for you. Introducing the Bankless MCP. ChatGPT and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokenomics, or just what happened last week in crypto and the gaps will start to show. The problem is context. Bankless, on the other hand, has spent almost a decade building one of the deepest archives of crypto data anywhere. More than 2,000 podcast transcripts, 10,000 articles and countless conversations with the people actually building this industry. And now we've structured all of that data into the Bankless MCP.

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  So you can go and connect it to your Claude or ChatGPT and suddenly your AI can answer your crypto queries with the entire Bankless archive behind it. And every new Bankless article or episode gets added automatically. So the context keeps staying up to date. The Bankless MCP is exclusively available to Bankless premium subscribers. So you can go to bankless.com, upgrade to premium and connect the MCP in just a few minutes. And all of a sudden, your crypto queries to your AI LLM, whatever you use, will get a thousand times better. So go check it out. There is a link in the show notes and once you become a Bankless premium member, you can hop into the Bankless Discord and let me know how you like it. I see Ethereum stuck between trying to maximize two desires, both of which I think are noble.

• 18:32Speaker 00

  One side is, I think, the side that you guys agree with, which the philosophy of the Ethereum protocol is one of radical self-sovereignty, radical self-reliance. The protocol has no dependencies. That's the whole point. It will never be owned or operated by a single cartel, to use your words, Sam, or a small group of people who can kind of control the influence. And the Ethereum protocol has always bent towards removing intermediaries, removing dependencies, being a multi-client system. Everything about Ethereum is, you know, radical self-sovereignty, 100% uptime in, in every single respect. And I, I see your guys' arguments as to how this is congruous with that. That's one side of a polarity.

• 19:16Speaker 00

  The other side of the polarity is Ethereum has a DeFi ecosystem. It has a, a private market on the other side and the private market can solve a lot of problems. And, you know, on one side, you might call them like a cartel of people, you know, co-opting the protocol. But on the other side, you see the private market being efficient and solving problems. And so, you know, one of the arguments is that this EIP preserves the value of vanilla ether. Well, in AVE, you can deposit vanilla ether and you can get effectively the ETH staking yield while holding on to vanilla ether because you've deposited in, into AVE. And so we have the, the private market solving some of these problems.

• 19:59Speaker 00

  And the ETH staking yield is kind of viewed as like a way to inject ETH into the private market. You know, the central bank issuing currency into the commercial banking layer. And then the commercial banking layer distributing that to the rest of the ecosystem. And, you know, instead of maybe calling it a cartel, you could call it just, this is the free market. This is capitalism. This is the market economy building structures on top of the Ethereum economy. And these two things are harmonious. And the desire to go full radical self-reliance is actually destructive of the market economy that's based on DeFi. That has monetized ether inside of AVE.

• 20:40Speaker 00

  It's monetized ether inside of Uniswap and reducing the, the flows of ether into this market economy is going to be destructive of the thing that has produced so much value for ether in the first place. So why are we fighting the market economy? Why are we fighting the DeFi layer? When in harmony, these two things together actually produce, you know, one plus, one plus one equals three. That's the other side of the perspective. And so like, I, I think the, the DeFi people will want to hear from you guys some amount of like, I don't know, like admission that that some of these problems are actually partially being solved, maybe not to the fullest extent of what you guys want, but the DeFi ecosystem

• 21:23Speaker 00

  is is going to be harmed by this. And that's the perspective that I see. Okay. So Sam, Sam, take what I've said and kind of respond to it.

• 21:32Speaker 02

  I want Jerome to go first.

• 21:33Speaker 00

  Sure. Okay. Sounds like you guys are ready for this.

• 21:36Speaker 02

  Okay, there's so many, so many places I want to hit there. I want the diplomat to go first and then I'll go and then he can clean me up.

• 21:44Speaker 01

  Okay, I will, I will, I will never go to the extent of calling AVE and Lido a cartel. I think they have brought tremendous good to the ecosystem. And naturally, this EIP is impacting a portion of their business directly. So it's very, very expected that them, Ethereum and so on, are the first to react. And over the years, they've been very good stewards of the protocol itself. Especially when you said like, look, it's like the monetary policy, the Fed decide this and decide that. Well, when the Fed put its rate at 12%, suddenly

• 22:26Speaker 01

  the Fed's right just beat everything. So everything goes to the Fed. That's the kind of situation we are in right now. Okay, there is literally no strategy that involves ETH maximizing that cannot involve staking, because staking is notoriously low risk for many different reasons in terms of infrastructure maturity, in terms of slashing protection at the client level, in terms of of amount of different derivatives you can touch on, and also too big to fail effect. That are nothing, nothing can beat staking. So we currently have a de facto best thing to do with our ETH that is putting them at stake. But before

• 23:07Speaker 01

  that, before we had staking, I mean, pre-merge and even pre-launch of the proof of stake, we also had a DeFi ecosystem that was very healthy with a similar TVL, if I'm not mistaken. So the, the situation that we are in right now is also something that we have fabricated with our lack of understanding of what the behavior of the staking will be at the right side of the curve. Like a lot of research went into making sure that we are paying enough. So the, so the curve is good enough that people want to stake early on without knowing if and when they will ever be able to withdraw. But we didn't look at our, our

• 23:52Speaker 01

  capacity to, to actually make the market reach an equilibrium in terms of staking. So that's coming back to the first point, like, yeah, we need to, we need to make Ethereum radically independent, incredibly neutral thing and so on. And I'd love to hear at some point, the, the original designer of this curve express themselves and say like, yeah, maybe we made a mistake. We should have looked at, looked at this differently. Now, from, from a pure DeFi standpoint, I think DeFi will be fine and even will be the better shape after this change. The staking rate isn't free income at all. It's funded by diluting every holder that doesn't stake. That's, that needs to be understood. What,

• 24:36Speaker 01

  what we are removing is a, is a subsidy for DeFi's own users that they, they are paying through a backdoor. Okay, yeah, you get, you get, you get subsidized to, to go at stake. We don't need this much of, this much ETH at stake. But you are paying that for dilution. But you have to know, so that DeFi has already repriced for, from much bigger version than this. Like the, the rate fell from 20% to under 3% at the staking level over the years. And the lending market adapted, different staking, everybody has adapted as well. Here we have a change that propose a published formula that has two years of runway. You

• 25:19Speaker 01

  can adapt, you can build around it. And I think that some spread will survive, some other will shrink a little bit. What's missing, and it's been, it's been asked notably by Stanny, is like, yeah, but where is the cascade model of the LST and the lending impact and so on? And I'm, I'm, I'm trying to come at them and say like, yeah, you have the numbers, you have, you have the research team and the risk teams. Let's team up. My DMs are open. Both the Ethereum CEO and the AVE CEO knows where to reach out to me. And I would love for, for us to collaborate and build up this kind of model. Maybe, maybe the 18 monsters is too much. Maybe the 18 monsters is too few. Maybe there's an adjustment

• 26:02Speaker 01

  that we need to make on this curve to make a smooth lending for everyone. But that doesn't change the problem. We are paying too much for our security and we are over-diluting our asset and slowly pushing all ETH to go at stake and just replacing it trustless money with governance money. And that's, that's not what we are signed for.

• 26:19Speaker 00

  With the argument around Ether dilution, I want to push back a little bit on that, just because of my understanding with how proof of stake works, right? So the, the idea is that there's just like unnecessary dilution, there's inflation, there's a cost to vanilla Ether holder. And we need to preserve the value of vanilla Ether because it's the most trustless asset in mankind. And so let's imbue that with as much moneyness as possible.

• 26:43Speaker 02

  Well, you want to preserve it as a portion of the overall set of holders.

• 26:48Speaker 00

  Yeah, yeah. My, my counterargument, or at least something I want you guys to contend with, is that proof of stake is already incredibly efficient in the first place, especially Ethereum's version of proof of stake. It's our, in terms of economic security, is already crazy efficient. So the remaining issuance, which is already very low, naturally automatically flows to the people who are already the most inclined to hold ETH in the first place, which is the stakers. And these people, you know, we talk about like, you know, Tom Lee is generating $250 million of ETH in ETH stake every single year. What is he, is he doing? I mean, maybe

• 27:32Speaker 00

  this changes, but like, he's probably holding it. And so are all of the solo stakers. The natural thing to do for all ETH stakers is to hold the ETH that they are issued. So in terms of the dollar price on the secondary market, I actually don't see too much impact that this protocol will have in terms, in terms of the secondary market dollar price for vanilla Ether, the asset, because it's not like the staking yield is equivalent to sell pressure. In fact, I would say that there's almost a negligible amount of percentage sell pressure from Ether issuance. And I know this is a little bit tangential to what you guys were talking about, but I do kind of want to throw that one at you guys.

• 28:10Speaker 01

  Before Sam, I'd like to respond with two bones that I will throw, throw back at you in this case. The first one is that the, the issuance is going to be 0.9, like in a few weeks, something like this. 0.9%. Okay, that's fine. 0.9%. The max issuance that Ethereum can live on is 0.5. Actually, at the same level of staking that we have today, will be closer to 0.3 or something like that. But never mind, let's take this delta for, for this case. So that's 0.4 delta. This 0.4 delta at today's price is, if I take 1 billion dollar. Okay, can we, can we save 1 billion dollar? Can we not overprint 1

• 28:49Speaker 01

  billion dollar? Well, on a couple of hundred million, billion dollars market cap, I think that's, that's, that's a meaningful guts. That's, that's a meaningful way of doing things. So it's, this, this, this is not a small amount. But indeed, when we compare dilution, we're like, hey, look, Bitcoin is diluting its holders by 0.8. And in a couple of years, they will have a halving, they will be 0.4 and so on and so forth. So if we are comparing ourselves to the leader in terms of market cap, like, yeah, we are in the, behind the weeds, like we are in the, in the same shape. And we are much more conservative and less dilutive than all of the rest of the, of the, of the proof of

• 29:30Speaker 01

  stake out there. But still, it's a billion. So can we save this? Like, we should save this in this case. And you're right, like, some of the, some of the holders of ETH that are the most, the most Ethereum maxies, they are also staking and they are making money out of this. But are they making this money?

• 29:52Speaker 01

  Are they choosing staking because it's what they want to do or because it's what pays the most? And I would argue that this is because this is what pays the most. If you have a vault on that's that's that's sole purpose is to to provide liquidity and and the right the volatility of ETH and that this vault is super long ETH and very conservative that exposing itself too much, like trying to keep up the the principle as much as possible, it's paying 1.1 or 1.2%. You're never gonna have Tom Lee provide liquidity to this when he can have at least 1.5 at stake and more likely between 1.5 and 2.2 for the next two to three years.

• 30:36Speaker 01

  So we are preventing other DeFi application or DeFi usage of ETH that will be much more beneficial to the price action and the market setup of ETH to arise by just funding all the ETH towards taking. And that's not even considering the the the security problem and credibility problem comes at it. So that's that's that's my two points on this. Like it's it's not a small change in terms of budget impact. We are going to save a lot of money. And also, we are going to let ETH be allocated to more productive thing than just adding a little bit of marginal additional security at the cost of of potentially losing our own social tech stock.

• 31:18Speaker 02

  I hear a lot of people against this keep talking about Ethereum's issuance as a productive yield, and that is not true, right? I think Ansgar actually mentioned this in his recent little note. You are taking a dollar from one pocket and moving it to the other pocket. So you're taking your subs, you're basically, you're taking money out of your left pocket and you're moving it to your right pocket with with issuance. And in this case, you are doing it to encourage an activity, in this case, to secure the to secure Ethereum. And any penny more than what is absolutely required risks, well, first of all, it's

• 31:59Speaker 02

  excessive and it's it's imposing an excess tax on the system itself, right? Obviously, much more so on those who remain unstaked, and that's why everyone will go to becoming staked, right, to avoid this excess tax. But anytime, you know, there are all types of additional side effects of this. One is that you are effectively subsidizing an activity. And this is actually very similar to the subsidy that the US government kind of implicitly gave to housing leading up to the global financial crisis. You encouraged excess risk-taking in this behavior.

• 32:43Speaker 02

  You know, this, I guess, was, you know, everyone, every American should own a home, right? And, you know, there were Fannie and Freddie provided very, basically, government guaranteed lowered lending rates for those mortgages, and you got a tax deduction to be a homeowner. And so in a lot of ways, you know, the same leverage that built up leading up to the global financial crisis is very similar to the subsidy that we're giving to looping, looping ETH, basically. And I don't mean to suggest that I think that the amount of leverage is high or worrisome

• 33:21Speaker 02

  or it's not at this point, but it's the same type of thing because of this subsidy that the protocols, I've been shocked that they think that they're entitled to this. They're entitled to take money from me, the non-technical Ethereum, who doesn't, I share a validator with with a friend. He is more technical than I am. But if I want to stake because I'm not, I'm non-technical, the easiest way, and certainly the way that provides me the most liquidity, is to use one of the dominant LSTs.

• 34:01Speaker 02

  And so, you know, in a lot of ways, you're forcing me, right, to avoid having money taken out of my pocket and paid to a stake. I'm foregoing this, you know, this money. And by the way, once it goes above 50%, and arguably now, I realize that I'm guaranteed to get bailed out. Even if that LST gets hacked or it's the operators become malicious or they're slashed, I'm going to get bailed out. So what risk is it? What risk is there, right? Why would I not just move my money into that LST or into that dominant protocol? So, you know, you often hear about the network effects of liquidity, which is true.

• 34:43Speaker 02

  So the most dominant or LSTs will have the deepest liquidity, and that will be what will the the network effect of that will cause them to become even more successful. But it is also the case that the bigger they are, the more, the more too big to fail that they are, the more, the bigger they're going to get because that that is a network effect. I'm going to, I actually know researchers who have used AVE, I'm sorry, not AVE, but LIDO, because A, it's the most liquid and B, as it gets bigger, they know if something happens to LIDO, it's going to get bailed out. And that is sad. That is, it's depressing. When I first found out about that, I was speechless when this person told me at a dinner. It was almost, almost two years ago. It was in Brussels.

• 35:25Speaker 02

  Look, this is not a problem we can wait any any longer to to handle. I think, let me also address this issue of somehow being bad for DeFi. I totally disagree. I was shocked by this. I was very surprised. You know, I think that, first of all, again,

• 35:46Speaker 00

  Let me, let me set up the the question for you, Sam. Like after my podcast with Stani and Mike from AVE and EtherFi, the takeaway that they think will happen if this EIP goes through is there will be a mass exodus of the ETH out of DeFi because the staking yield will be lower, the incentive will be lower. Do you think that is accurate?

• 36:08Speaker 02

  The subsidy to loop your ETH will be lower.

• 36:11Speaker 00

  Yes. Do you think that's accurate? Do you think that as a result of this EIP, there will be less ETH in DeFi?

• 36:17Speaker 02

  I actually think it'll be the opposite. I actually think that what will happen is the price is going to go up. You're going to have an epic bull market and the demand for leverage and looping is going to go stratospheric. So I actually,

• 36:28Speaker 00

  Wait, with with with a reduced subsidy in of ETH because the issuance is lower, you think the looping will increase?

• 36:36Speaker 02

  Yes, yes.

• 36:37Speaker 00

  But I thought you want, I thought you want the looping to,

• 36:40Speaker 02

  Your price is going to go up. The price of ETH is going to go up when you stop diluting ETH holders, right? When you, and I guess it's not just raw ETH holders, it's at a system level, right? At a system level, right? You are, the ETH is, has too high inflation. It's it's too much for the market and it's suboptimal, right? And by the way, when you make the monetary, and by the way, Ethereum's Ethereum is set up such that we have what is a, what is a basically a combined fiscal and monetary policy. We don't have Congress that that, you know, funds programs,

• 37:20Speaker 00

  Right, yeah.

• 37:21Speaker 02

  And and and an independent Federal Reserve. We have a joint,

• 37:24Speaker 00

  That that issues, yeah.

• 37:25Speaker 02

  Correct, right? And so,

• 37:27Speaker 00

  Spending and issuing is the same thing because,

• 37:29Speaker 02

  It is pure money printing. It is the definition of print money printing when you have a joint authority. And so right now, that money printing is just going to subsidize this single activity, which apparently, you know, they acknowledge it is a subsidy that they think that they're, they, they, they need. I actually, I said this on Twitter a couple of days ago. First of all, I think that the price of ETH is going to go up when you reduce the the issuance. I think that is just mechanically mathematical. I think the second, partially because this is unexpected, an unexpected monetary policy

• 38:08Speaker 02

  change that is a tightening of policy should almost, you know, by default result in a a positive price reaction. But two, it makes Ethereum more credible, right? Signaling and actually having this conversation and people learning this in a lot of ways, maybe the pushback against this is actually beneficial. So all of Wall Street and all of the companies out there are going to learn what makes Ethereum different and special.

• 38:36Speaker 02

  You know, they're going to realize that Ethereum is not able to be captured, that it is the most credibly neutral. And that is going to mean more adoption and more growth. And so that is going to be positive for the price of ETH. But I think, second of all, you know, we see this in almost every economic situation in history, where the more credible a fiscal monetary policy that a country has, the more robust and vigorous the financial system. And so that is what, you know, if you talk about what, why, why the US has the largest and deepest capital markets in the world, people point to the historical strength

• 39:18Speaker 02

  of our fiscal monetary policies and a robust national defense.

• 39:25Speaker 00

  And our court system as well, like our court of laws.

• 39:28Speaker 02

  The rule of law, right?

• 39:30Speaker 00

  The rule of law, yeah.

• 39:31Speaker 02

  So absolutely. So, and that goes to the credible neutrality analogy. So I actually think that this is, so I was very surprised. Now, let me, let me just see one possibility. I think that maybe on the margin, and I think that this would be good for everyone, certainly in the in-state, but maybe on the margin, you could see, you know, you'll see DeFi protocols that previously just felt like they were being pushed out of the market because they couldn't compete with this lending, you know, paradigm. You'll see other applications that, well, maybe on the margin, grow. And that would be, that would be positive and, but maybe slightly on the margin in the very, very short term, but I really don't think so.

• 40:16Speaker 02

  I think it will be, and I was surprised to hear it. I'm, I'm still a little baffled by it. I think that the only way I can really rationalize the position that some of the guests that have appeared on your show and others that on Twitter is that they're being basically very short-term oriented and frankly, very negative. Like my vision for Ethereum is so much grander than theirs. I just don't even understand why they would want to optimize for this short-term outcome when, you know, when, when sitting at, sitting atop an ETH, you know, an Ethereum that's worth 10 or 20 trillion versus one that is relegated to a future like Cosmos.

• 40:59Speaker 02

  That's the only way to kind of explain their behavior is, is extreme short-termism and a lack of fully appreciating the upside that Ethereum has.

• 41:10Speaker 00

  I want to hear a little bit more about why you think this would be good for DeFi. My, my initial reaction is that if you take away the issuance, you take away the subsidy, you reduce the total amount of, you know, new Ether that looping and other activities like looping provides to the market. And so that market must contract, especially if, if, you know, looping accelerates the, say, say this EIP goes through, looping just accelerates our road to 50%. And if looping at all gets the total ETH approached to approach 50%, why loop at all? Like the incentive dries up so much more quickly.

• 41:50Speaker 02

  There are other things to do than just loop is what I'm saying, right? You could pay all types of other things that, but builders aren't going to be, there's not going to be the interest, the capital and the motivation to explore those others when they're being crowded out by this excess issuance that is solely go, that is being only routed through the consensus mechanism into looping.

• 42:16Speaker 01

  I would like to jump in on the, on lending itself. Like, if you, if you take lending, what's the future of lending in the next six to 18 months? You have a massive amount of addability and tokenization that's coming to, that's coming on blockchain. Hopefully they will stay on Ethereum and that will be their, their main pick in terms of where to, what to lend. That's, that's just the repo markets, the global repo market that is going to change and use those kind of venues to, to function differently than they were before, 24/7 with lots of advantages. I want to see Ether as a pristine collateral in this case and not just something that you loop on.

• 43:01Speaker 01

  Just like the natural, the natural thing to do. So there's a, the relationship with a less dilutive, more price is something that's clearly established in the, in the, in the macroeconomic literature. Like the less you dilute, all things being equal, you should just have a better price appreciation. And from a security perspective, just, it's, it's a very complex spectrum to navigate, but it's not just the amount of ETH at stake, it's the value of the amount of ETH at stake. So we have, we have an opportunity here to even get more security by pushing the price up. And one of the reaction we had, one of the reaction we had is very often time,

• 43:46Speaker 01

  people were saying like, it's just small, you know, it's just, it's just a small change. Like we already dilute so few. Yeah, but the trend is more important than the dilution itself. Like we are trending up, we are definitely trending up in terms of a matter of ETH going at stake and thus we are trending up in terms of, in terms of dilution. So the, the market recognized that this dilution is ongoing and it's compounding and it's not going to stop. So when people are saying that we should focus more on things that propel better adoption, there's literally no crypto entrepreneur out there, out there that will tell you like, I have a better catalyst than the token going up.

• 44:24Speaker 02

  I have to say, it's so bizarre that Ethereum has become the opposite of Ponzi-nomics. Now we want to do the opposite. We want to like dilutionomics, you know? I mean, like the, the fact that like we, we don't want to optimize our policy for both what is best at securing Ethereum and as a byproduct of getting it right, secure Ethereum makes the price go up. You know, this is, this is a rather strange, you know, dystopia of a very long bear market that Ethereum people have, have somehow lost this kind of basic perspective.

• 45:01Speaker 01

  Let's just, let's just look at what happened when we have a more ETH stake, just from a market perspective. So when half of the ETH are at stake, by definition, half of the ETH are not at stake. When 60% are at stake, 40% are not at stake. One of the driver of large purchase on the market is of course, how, how big is your slippage? How, how deep is the market? So as you send more ETH towards taking, you are limiting the amount of ETH that is available for purchase. So some people may say like, yeah, this is great. Like there's no more ETH on the market because all the ETH are going at stake, but it's not good for the price. Who want to hold an asset that whenever you want to sell it, still have a, the precision is not that good and whenever you want to sell it, the, the slippage is 1 or 2%.

• 45:46Speaker 01

  Okay, this is also something that, that boils down to how DeFi function. It's, it's not just a repo market and lending. We have DEXs, we now have very complex strategies that are available, very sophisticated strategies that are appearing with the, the new venues that are popping up. And you had more for on the, on the, on the podcast recently. We know also that, that AVE is doing things with V4 and so on. This is getting very sophisticated. Now we have things we can do with our ETH that are not just looping and we should give those alternative a decent chance and also not dilute ourselves. Make Ethereum the pristine collateral it should be and also the money it should be, the trustless money it should be for the global financial ecosystem.

• 46:31Speaker 00

  I think what I'm hearing from you guys is that if we reduce the subsidy, we reduce the amount of new issuance to pay for ETH staking, this might actually be a boon to the DeFi economy because Ether is unlocked and made more available to the free market on top of, on top of the consensus protocol and might make Ether more available for new DeFi startups or even current DeFi startups to do more things with that Ether because they don't have to compete with somebody they can't compete with, which is like the central bank of Ethereum, which is the issuance protocol.

• 47:08Speaker 02

  I'd be curious if Jerome disagrees, but, but, but I mean, in traditional economics, you know, crowding out is the term that's used, right?

• 47:17Speaker 01

  When you hear from, from ETF issuers and DATs about Bitcoin, it's like, oh, it's so simple. We just say it's 21 million, even though the, the, the security budget is just hand waving. Like, yeah, well, we, we don't know, like maybe like the price will just double every time we, we, we lower the issuance. That's, that's actually the play of Bitcoin. Every four years, we just have a, we just have halving and we say like, look, it's getting greater. And some people are saying like, this won't apply to Ethereum. Like, okay, well, that's, I will, I will definitely take this bet. Anyway, the beauty of Bitcoin, the beauty of Bitcoin is its simplicity of just saying like it's 21 million and everything else is hidden behind the curtains. We don't really know if it's going to work or not.

• 48:03Speaker 01

  We have the opportunity with this EIP to make a very clear statement, statement that is the max dilution that you're going to have on Ethereum is 0.5 and we have our economic security fully figured out. So it's 0.5 max, that's your dilution. And that's actually something that is starting to arise in the discussion that we've been having for the past 10 days, the heated discussion about issuance, is that some people. However sophisticated you think they could be because they've been in this space for like 10 years, sometimes more, like they've seen all the things on DeFi and so on. And suddenly they are starting to realize that their yield is actually dilution adjusted. Oh, well, I need to adjust for dilution?

• 48:46Speaker 01

  Yeah, you need to count that into your into your calculation. And the new holders of ETH, the sophisticated holders that comes from institutions, that's the kind of question they ask, like, okay, well, I'm getting how much this much? But where is it coming from? It's coming from issuance? Okay, so there's a dilution. So what's my adjusted thing? And what kind of tax am I paying on top of this? Huh? Okay, let me compute that. The arithmetic just doesn't fit. That's a major improvement for Ethereum to have a limited amount of issuance as as low as possible, but as much as necessary. Keep it 0.5, keep it easy to frame. I'm not super hell bent on the 0.5.

• 49:31Speaker 01

  Maybe 0.75 is better, maybe something else is better. But at least making sure that the market can find an equilibrium is what we need. And we have enough research backing to say that 0.5 is achievable and it's good for our security overall. We should not let this opportunity fall.

• 49:48Speaker 00

  I want to talk about Tom Lee. Because Tom Lee has been the single largest buyer, or Bitmine has been the single largest buyer of ETH in the last year by far, because he's plowed like $12 billion into ETH. And like, one of the reasons that he did that was the staking yield. So Bitmine is getting something like a quarter billion dollars a year in staking yield. And he's like using that to tout Ether as an asset, Ether as investment to Wall Street and to like the marginal buyer of ETH. And so there's two concerns that I have here. First, like, we just kind, if this proposal goes through, the recent single largest buyer of Ether ever, who just plowed $10 billion into ETH,

• 50:32Speaker 00

  $12 billion into ETH, with the promise of getting staking yield, is not going to have the staking yield that the monetary policy of Ethereum previously told him he was going to get. And so I know we're trying to create credible neutrality, but there's also something about like, you know, don't tamper with the monetary issuance in so that it financially harms people. It's kind of like also an ethos in the crypto industry. And so like, we're kind of harming our single largest buyer of Ether that we've ever seen. And also, we don't really have this like yield to advertise to like Wall Street and everyone else that he is using to sell Ether to everyone else.

• 51:13Speaker 00

  And so despite all of you guys' arguments, which I think are good, the optics of it, of changing monetary policy right after our largest buyer ever buys a bunch of ETH, is not great. Sam, how would you respond to that?

• 51:28Speaker 02

  Well, I've known Tom for a long time. At least 15 years. And Tom is very smart. And I think that Tom would much rather get 50 bips or 100 basis point yield on a, I think his target is $30,000 ETH, than he would 2% on a $1,000 ETH. And for that reason, I'm, I would be surprised if Tom did not, you know, I would be surprised.

• 52:11Speaker 02

  I have not spoken to him directly, and I don't want to speak for him. But I would be surprised if he did not look at his, what was in the best interest of himself and importantly for his shareholders, because that's what he has an obligation to. And, you know, this really goes down to the value of your principal versus the value of your coupon. And I think that I tried to make this case to, for solo stakers as well. You know, you are not going to get the type of price appreciation for short, medium, or long term

• 52:51Speaker 02

  that you would get with an optimal issuance setting for Ethereum. And so, again, just going back to Tom, if I look at, you know, his forecast, you know, he's as bullish on, I think, the future of Ethereum as I am. And so I would be very surprised if he didn't see it the way that I did and want to earn 50 bips or 1% on, you know, you know, a $30,000 or a $50,000 or $100,000 ETH that where Ethereum is the credibly neutral settlement layer for the global financial system.

• 53:30Speaker 02

  And the alternative is you keep your 2% and we are on the road to Cosmos, which literally the atom token goes down every single day. And the analogy between here is very similar. And I think that this is, you know, I think, so that's how I feel about it. Maybe Jerome could weigh in differently.

• 53:54Speaker 01

  Yeah, I remember back in late May or early June, Tom Lee tweeted that he is not opposed of an issuance change, but it has to come with a large consensus and be, whatever, like prepared and so on. And he hasn't expressed himself on the matter, and I hope he will at some point. But let's take the opposite argument. Like, if issuance is really, like, if staking yield is really bringing ETH up without any consideration regarding security, yeah, why don't we like 2X or 3X or 4X the yields? And see what happens? Like, yeah, if you can send us to Namek, let's go and make the trip.

• 54:39Speaker 01

  Why not? But as Sam just said, like, when you are a DAT ETF, you have your principal and your coupon. You sell the yield as the coupon. So sometimes you must have a hard time explaining like, okay, it's paying 2%. But that seems a lot for something that's supposed to hold value. Like, is it holding its value? And then they open the chat and like, yeah, it's sort of in this range and not really moving around. Like, yeah, like, nobody cares really about the coupon if the narrative on the principal, it's not something that's convincing.

• 55:16Speaker 01

  So I think opposing the issuance reduction from a pure DAT ETF perspective is twice detrimental. Like, first, it says, well, minimizing dilution is not so important. It says, we're not backing up fundamental changes that's going to improve the store value characteristic of the asset. So it's a weird thing to say, like, oh, you don't want the issuance reduced? What is your reason? Oh, yeah, DeFi problems and so on, it's so intertwined, like, we don't want to touch that. Yeah, but about the asset, it's good to have less dilution, right? Yeah, but you know, like, you're in a difficult spot, I think.

• 55:58Speaker 01

  And secondly, when you say, I oppose the issuance reduction as an ETF for DAT, you're saying like, well, we accept that the de facto use case and only use case of ETH is just to sit as a staking derivative or in a staking venue, mostly doing nothing, not really promoting adoption or innovation, not, you know, not helping out, except for extracting some fees out of the rent. But soon enough, you'll have the question like, well, the dilution is 1%. The yield is 2%. What's left is just 1% adjusted. So is that really paying this much?

• 56:40Speaker 01

  Okay, I'm going to, I'm going to do a little repricing of the principal itself. So, yeah, how is the principal supposed to raise in value? If we are not doing everything we can to maximize its security, its credibility, and at the same time minimize the dilution that every holder has to bear?

• 57:02Speaker 00

  Let's talk about solo stakers. The common response to this EIP was that this reduces the ability for solo stakers to participate in solo staking. And solo stakers as part of the Ethereum structure are the defenders of last resort. Like, we must have solo stakers in Ethereum or else this whole project doesn't work. And by reducing the amount of Ether issued for security, you directly harm solo stakers disproportionately versus any other part of Ethereum staking complex, simply because solo stakers have the highest fixed costs. You know, Lido or any other like staking pool has like low fixed costs and they can scale very well simply by their size.

• 57:45Speaker 00

  But any decrease in rewards harms solo stickers the most because they're the ones who are paying for the machine, the internet, the electricity, the uptime, all that kind of stuff. So how would you guys respond to the critique that this pushes out solo stakers in favor of the cartel, the quote unquote cartels that you guys are trying to minimize in the first place? Sam, how would you respond?

• 58:10Speaker 02

  The history of proof of stake is that, you know, they have been overtaken by cartels, right?

• 58:16Speaker 00

  Other proof of stakes, not Ethereum.

• 58:19Speaker 02

  Correct. And

• 58:21Speaker 00

  And so when we use a cartel word, we're not talking about any Ethereum entity, but we're talking about the boogeyman, the cartel boogeyman out there.

• 58:28Speaker 01

  Yeah.

• 58:28Speaker 02

  Correct.

• 58:30Speaker 00

  Right.

• 58:31Speaker 01

  Solo stakers, everybody can come and say, I'm a solo staker. But sometimes they just have a solo staking mode and they are posting gravities or they've been active in the community for quite some time. I can name probably 10, 12 solo stakers that I know, including me, that are pro this kind of issuance, this kind of issuance change. The other ones are, you know, some are against, some are more composed. They want to dig more into it. They got to make a better, more informed decision to support it on that as time go. But you're right, like Ethereum has been designed to be solo stakeable.

• 59:11Speaker 01

  And that's a pretty strong word because we have to impose a minimum stake of 32 ETH for various reasons, like we don't want the network to be 50,000 staking nodes because the network throughput will have a bad time sending the blocks across the whole network or those kind of reasons. So we have this 32 ETH, and 32 ETH can be a meaningful amount of money. But nevertheless, you should be able to split a node when you have enough financial resources and you are decently technical. Like, we have a lot of great organizations that are doing the work out there to make sure that it's accessible to actually go stake. Now regarding the EIP itself and solo stickers,

• 59:56Speaker 01

  we've been correcting our own language and trying to make sure that we don't lead people into a misunderstanding that this EIP is saving the solo stickers. No, it's not.

• 1:00:09Speaker 01

  I'm not going to try to make it up. We cannot claim that this proposal will preserve solo sticker share. We don't. The research on the matter is genuinely split and we can't pretend otherwise. But what we claim is quite narrow. Today's curve pushes the solo stickers out.

• 1:00:32Speaker 01

  That's it. That's what it does. Delusion rises, tax will hit and is already hitting the denominator number, and there's no equilibrium to stop that either. So the status quo is worse than the change because the status quo will push the solo sticker out arguably faster, but it's split on the matter, but I think arguably faster, and we'll end up in a much worse situation, a situation where we have more dilution, more concentration of stake in a few venues, and way less solo stickers. So the tapering of the issuance removes the pressure regarding dilution, the pressure

• 1:01:14Speaker 01

  regarding taxes and nominal numbers, and allow us to have an equilibrium. And it's doing that without adding any burden that lands harder on the small stickers compared to the big stickers. So it's generally applied the same way everywhere. We are taking a fraction of the yield from everyone and no fixed fee overall. So the status quo is not a good place to be regarding the solo stickers. And some solo stickers don't really realize that. Some stickers are like, okay, well, I care more about my principal, so you're getting my coupon. That's okay. I want my principal to go

• 1:01:55Speaker 01

  up. So they are supporting this because they believe in the aftereffect regarding the price. Some are way less sensible to costs, like a fixed cost of $500 of hardware and time and so on, not that much. So they're like, yeah, I'm not sensible. I've 32 ETH already at stake. But nevertheless, the tax effect and the dilution effect applies at first at the solo sticker level. They are the butterfly in the forest, as I like to frame it, and the status quo is hitting them harder. They will get pushed out, whatever happened, but the equilibrium that will be post

• 1:02:39Speaker 01

  solo stickers out may not exist, and they will be out with much more dilution for everyone. So we don't want to claim that we are protecting them. We want to claim that we are making them

• 1:02:52Speaker 02

  There will be nothing to protect.

• 1:02:53Speaker 01

  In a much better fashion. Yeah.

• 1:02:56Speaker 02

  Yeah. I think unfortunately, there'll be nothing to protect. I mean, like I said, I share a validator with a friend, but if I'm not bullish on the long-term outlook for eat the asset, that activity is not worth it to me. And so I'll probably, you know, ask that we shut down that validator.

• 1:03:15Speaker 01

  Yeah, as a solo stickers, you have the operational risk and the, you have the operational risk to bear. But when you are putting your money into an LST, you have the operational risk and also

• 1:03:31Speaker 01

  the risk that's inherited to the LST. Arguably, the operational costs of the solo stickers are higher than whatever is out there, but they have one, just one cost to bear. There are one risk to bear. And lowering the staking yield and allowing the market to find an equilibrium is also giving us a chance to find a yield amount that is both enough to save some solo stickers and also to have the market lending equilibrium at the same time. But we will come out first. It's an open question, but what's for sure is that the current status quo is very much detrimental to the solo stickers already.

• 1:04:14Speaker 02

  But remember also that solo stickers are not too big to fail. The largest staking pools are. And so why would you remain a solo staker if the largest pools get so big that they are undoubtedly too big to fail? That is an irrational behavior, especially for one that you now have less confidence in its long-term credible neutrality and the values that you signed up for. So, you know, again, for reasons that are not as purely economic that Jerome just went through, I think that there are other reasons that, like what I just mentioned, I think that there's other angles here as well. I think that, I think the too high issuances is actually, and you will not find,

• 1:04:59Speaker 02

  there's not research on this, this is an unexplored topic area, but for a very long time, a lot of Bitcoin has been mined in Iran and China, countries either where people want to get money out because for capital flight out of China, for example, where you're effectively spending your RMB to receive Bitcoin and then swap that into Tether, for example, or, you know, you mine in Argentina or Iran or places where the inflation is very high, and you want to, again,

• 1:05:36Speaker 02

  spend your local currency to get an asset that retains its value that you can, and has a better inflationary profile. I think that we should actually, we could see a, if we limit the growth of the centralized staking pools, you could actually see a better diversification of, geographically, of staking operations. Again, I don't think you're going to see any research on this, but I think that that is, because again, you're, the economic soundness of the asset is one that they want to own.

• 1:06:16Speaker 01

  Yeah, and maybe to conclude on solo stickers regarding how we can help them, actually, what actually worked for solo stickers to be more competitive with the rest? You have anti-correlation at the station penalties that is now being proposed for inclusion in Hegota. It's very, I think it's a bit far from the original design of this EIP 7716. It's been redesigned and reshaped by Ho Shin from OBO. That's the kind of thing that will help solo stickers, for sure. And personally, I kind of support this kind of.

• 1:06:53Speaker 02

  The economic requirements also go down significantly with lean, correct?

• 1:06:57Speaker 01

  Yeah, yeah, indeed. And we need also a medieval burn. If you want to help the solo stickers, we need a medieval burn. That's also something that's going to tilt the scale in favor of other solo stickers. But again, like the status quo is unacceptable for solo stickers. And once they will be all out, we'll be like, yeah, but we have a dilution of 1.3 and we are in an inevitable trend of coming up and up and up in staking as time goes.

• 1:07:26Speaker 00

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• 1:08:14Speaker 03

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• 1:08:56Speaker 03

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• 1:09:02Speaker 00

  I want to ask about the contention behind this EIP. This has been one of the most contentious EIPs in recent memory, in years that I can really remember. What's your guys' plan to get this EIP through, given that there's just seemingly a lot of hostility and contention around it?

• 1:09:20Speaker 01

  Well, very simply put, we're going to keep our heads up, continue to respond to the different arguments that we are facing, adapt, see if we get good reasons to modify the parameters that we have laid out, and let the PFI process continue. Like, we have the 26th of October for the consideration for inclusion deadline. We want to let this debate continue. It's great to see that people are more and more informed on the matter. We are getting interesting feedback to adjust. Some people are complaining that this should have been withdrawn already after

• 1:10:03Speaker 01

  just 10 days, but to the contrary, like we are getting a lot of positive things out there. We are trying to find a rough consensus on where we should go and how we should adapt. And I think you'll be surprised by the type of endorsement that will come in the following weeks, as people get more accustomed to the problem and more accustomed to the risk of doing nothing.

• 1:10:31Speaker 01

  And if it's not for this fork, it would be for the next one. But the gentle path is now, so we should not let this window of positivity close.

• 1:10:39Speaker 02

  Yeah, I mean, this is not a new issue. And those who, a lot of those people who are claiming it was whatever, many of them, I think unfortunately are misleading you. This is, this issue has been going on for at least five years. So much so that the researchers who worked on it have now almost all given up. My friends over at ETH Labs, unfortunately.

• 1:11:05Speaker 02

  I mean, they genuinely have burned out on this, right? This goes back to at least 2022. At that time, we put in place an asymmetric change to the validator queue to slow down the rate of new entrants, but left it unchanged for exits. Because this was a problem known then and we wanted to provide more time. Maybe it was 23, 2023. I wanted to provide more time for robust research. You know, Onsgar and Casper came back in 2024 with a proposal. It was brought before all core devs and Lido raised concerns and it was shut down.

• 1:11:51Speaker 02

  That proposal was more aggressive than this one. And we've had another, what, two or three years now?

• 1:12:01Speaker 02

  Where I think actually unfortunately, there's nothing really more to explore from a academic standpoint. It's almost the exact opposite of what the naysayers say. And so I will say like, you know, while sometimes I regret my spiciness on X. It's, it's, you know, I'm in many, in many cases, look, I am in this space at the risk to my own reputation and career. And I make strong statements at personal risk to my reputation, career. And so you should, you should appreciate that it's not done lightly. I'm not seeking Twitter followers or anything else. I'm doing it because I care very deeply about Ethereum.

• 1:12:44Speaker 02

  And because I have gone all in on Ethereum and I don't see a path

• 1:12:55Speaker 02

  without defending Ethereum's credible neutrality. And this is the minimum we can do to protect that. And I, for me, and again, I do not think this is Jerome's position. But I think for me, this is a bit of an existential kind of moment.

• 1:13:16Speaker 02

  I think that Ethereum community really needs to,

• 1:13:21Speaker 02

  you know, both look at the economic interests of the people they follow on Twitter. But they also need to do a little bit of, you know, do your own homework on this issue. There's a wonderful website, originally maintained by Casper called issuance.wtf. There's so much research there, you'll never be able to get through it. But maybe point your, your chat GPT or Claude at it and ask some questions.

• 1:13:49Speaker 02

  So there's nothing like, you know, whatever the naysayers say, whether it's like it's been rushed or it's like, we need to do more research or there's concerns, whatever. All of those things have been brought before and it, you know, this is getting a bit. There are no real defensible remaining objections, in my opinion. Again, I'm not even very happy with this. Jerome will tell you the morning the EIP dropped, I called him very upset because I was not happy with the 18 month, two year implementation. I thought it was unacceptable. And yet I'm here because I am compromising.

• 1:14:24Speaker 02

  I'm here defending it because I realize that we need to do what is best for Ethereum, even if it is suboptimal. I mean, my, I think maybe the exact thing I said to him that morning was they've already had five years to adjust, they don't need another two years.

• 1:14:44Speaker 02

  And I don't mean they being DeFi protocols. That was not what I had in mind. This has been a bit of a surprise to us. What I really meant is the, the staking service providers. Because all of them have been involved in this debate, you know? Lido actually has an individual, Artem, who shows up at every single Ethereum

• 1:15:11Speaker 02

  foundation sponsored issuance conversation. And he argues for, is it maximal viable issuance? What is it?

• 1:15:22Speaker 02

  He basically argues for the exact opposite of Ethereum's historical position. So literally they have one person who's, I think he's, he doesn't actually work for Lido. I believe he works for Cyberfun. And he shows up and literally is always given an opportunity to speak. He's published some, some work on this. So this is not new. This is not new to anybody. It's not a surprise. This has come before all core devs before. This is something that is very, you know, well traveled. And so I'm, I'm increasingly frustrated. I think that you could, you could question.

• 1:16:08Speaker 02

  And I have, you know, I think you could question whether or not, look, if we can't make this change because staking service providers believe it is not in their economic interests and they're able to maintain a, a more active social media presence, maybe Ethereum already is captured.

• 1:16:26Speaker 01

  I have a different, a different view on that because I've, I've been in the, in the space for like 11 years now. Mining in the early days and I remember the time where we had the difficulty bomb. So whenever, whenever we had something contentious to pass on the rewards, we're like, yeah, but let's, let's have the difficulty bomb kick in. And, and suddenly like, yeah, it's, it's, it's making things much easier to, to adjust like, because the whole network is suffering. We don't have a difficulty bomb for, for staking. Nevertheless, we have, we have lean coming up. It's the next three to four years. We are proposing a change that can last for a very long time and that's as a transition path to it.

• 1:17:10Speaker 01

  Neither, neither I nor my, my co-authors have any interest of forcing something through. Yeah, I want to, I want to stress that, like, we're not forcing things through, absolutely not. But anyway, nothing, nothing can be forced through in the, in the EIP, in the EIP process itself.

• 1:17:26Speaker 02

  I was about to say, I don't, I don't know how that would happen. And if anything, I've, I've been the one behind the scenes for the last two years, demanding that we get something proposed. It was a little bit funny when they tried to call it an ivory tower initiative, when the ivory tower, you know, is not really involved here.

• 1:17:42Speaker 01

  In any case, sometimes you have to say the, the uncomfortable thing out loud. We are on a dangerous path. And the current regime is bad for our security, it's bad for our credibility, it's bad for the market signal that we give in terms of boldness and capacity to adapt. It's mostly bad for solo stakers, but it's very bad for Ethereum itself. So I'm, I'm at least glad that we are having this discussion and I can definitely see the light at the end of the tunnel coming up.

• 1:18:10Speaker 00

  Jerome, Sam, the, the first time we covered this episode was with Onsgar and Casper back in, in 2024. And stake targeting was compelling to me then. I think there are a lot of arguments that I think people need to truly contend with, with stake targeting. I, one of the biggest arguments that I really like is that this is just a natural continuation of all Ethereum's monetary policy changes that it's ever had. It seems to be that this is like the path that ETH monetary policy has been on. And I think the arguments that you guys have that like, we aren't done yet on that arc are compelling. I think that needs to be contended with.

• 1:18:49Speaker 00

  I do also take the arguments that, that the DeFi ecosystem has to compete with the issuance rate of Ether. And if we are overpaying for security, we might be able to hit two birds with one stone in reducing issuance and making ETH more productive outside of ETH staking. And that's good for the DeFi economy. I really like these arguments. I am somewhat worried about the optics of the monetary policy. I am also worried about the lack of consensus around this EIP on an EIP that needs to have a lot of consensus to go through. I think some of the arguments that people give is like, this EIP doesn't have consensus, therefore let's not do it.

• 1:19:34Speaker 00

  I actually think that's a bad argument because not having consensus is not a reason to not have consensus. That feels like it's a little Ouroboric.

• 1:19:43Speaker 00

  I hope this conversation can continue. I think if we can get consensus on this EIP, that it could be very good for Ethereum. As you've alluded to, Sam, I think that's a long road. I think there's a lot of conversations that need to happen. I think unfortunately, that's just the way that it works in Ethereum. These are kind of all my thoughts as, as we sign off here. I want to thank you guys for coming on the show and maybe if guys have any last asks of the Bankless listeners, of the broader Ethereum community, or just any like next steps for everyone in particular. I'll kind of give you guys the final floor, floor here.

• 1:20:15Speaker 01

  Absolutely. If you are ETH holder, this will benefit you, so make your first voice heard. Indeed, it's a contentious and we are far from consensus at the moment, but it's only been 10 days. So we are at the beginning of the process, even if it's a short process. We have a, we have a way to get this through into form a large consensus on the matter. But do also note that not acting and delaying the change is just making the change much harder and at the expense of every ETH holders. So it's, the time is now.

• 1:20:48Speaker 02

  I want to thank David and the Bankless community for hosting this two-part discussion. And it is very important to Ethereum. It's, and I want to thank Jerome. He has really stepped up to, I think, provide a public service to Ethereum. That's something I don't think I could do. He's, he's really, he's really doing. And so I want to thank Jerome as well. And I would also say that both of us are eager to have any and all conversations. We want what is best for everyone and we're eager to, you know, engage in constructive dialogue with everyone. So, you know, we're both pretty available. You can include our Telegram and Twitter handles in the show notes.

• 1:21:33Speaker 00

  Jerome, is ECC going to be a banger this year?

• 1:21:36Speaker 01

  Of course, 10 years anniversary and we have a lot of issuance stuff to discuss. No, just kidding. It's, it's happening, it's happening in April, again, early April. We have to see there, the, the weather forecast will be as amazing as it should. And yeah, hope to see everyone in, in Canada again in the 12th of April.

• 1:21:56Speaker 00

  Jerome, Sam, thanks for coming on the podcast. I appreciate you guys.

• 1:21:59Speaker 01

  Thanks for having us.

• 1:22:00Speaker 00

  Bankless Nation, you guys know the deal, crypto is risky. That's why we're here though. The institutions have landed, so we are going even further west. This is the frontier, it's not for everyone, but we are glad you are with us on the Bankless journey. Thanks a lot.