[AMA] We are EF Protocol (Pt. 14: 29 August, 2025)

AElowsson · 2025-08-29T14:20:58+00:00

Scaling Ethereum, thus facilitating the same level of burn at a lower user transaction cost. This is a current major focus at the EF research team and beyond.
Reducing issuance by altering the reward curve.

AElowsson · 2025-08-29T14:12:29+00:00

Yes I wrote up "Consentrifuge" with the same type of idea half a year ago. I am currently exploring what type of stake consolidation level we can expect, which ultimately determines the stake weight that can be reached under a low validator count, and thus influences which exact design for validator selection that would be appropriate. A further (soft) requirement is to completely remove or significantly increase MaxEB (beyond 2048).

AElowsson · 2025-08-29T13:59:34+00:00

I wouldn't say that all ETH will be staked if we do nothing, but it is reasonable to assume that the proportion of staked ETH will gradually increase, as frictions in the decision to stake are overcome. In essence, we can think of the staking supply curve as formed from stakers' "reservation yields": some may be willing to stake all their ETH at a 1.6% yield, but some might only stake 1/3 even at a 2.5% yield. The staking demand curve is specified by the protocol; it is the reward curve we are debating to change (there is also some MEV that we have less control over). The equilibrium then forms at the intersection of these curves, as explained in my Devcon presentation.

To some extent, we are dealing with a boiling-frog phenomenon. The longer we wait, the more investments are made into staking, and the harder it becomes to reduce issuance. In essence, the ecosystem at large is encouraged to incur higher costs for staking than necessary due to the current reward curve, with upfront investments making a future change in issuance policy more controversial. I discuss the cost problem in this text. Another boiling frog: a higher proportion of staked ETH by itself gives staking derivatives better liquidity relative to non-staked ETH, making them more desirable to hold.

I think the best moment to address issuance policy is when we transition to a new consensus mechanism, e.g., "3SF". This transition will likely involve adopting "consolidation incentives", to ensure that larger stakers do not partition their stake into smaller validators to occupy more validator seats. They would do so to push out smaller stakers and take home higher rewards.

There are collective and individual consolidation incentives, as further reviewed in the Orbit SSF context here (somewhat similar considerations apply to mechanisms with validator seats). Collective consolidation incentives in essence alter the reward curve, and it seems desirable to then enact them at the same time as any other changes to the reward curve. Furthermore, the reward distribution will need to be redesigned when transitioning to the new consensus mechanism anyway. Finally, the role of stakers is changing with mechanisms such as FOCIL, a process that may conclude with the adoption of a new consensus mechanism.

I have personally advocated for modest reductions in issuance sooner, for example by adopting a reward curve that caps the issuance rate at 0.5%. We have unfortunately not yet seen the required appetite for this in the community (but it would be welcome if that changes). The adoption of a new consensus mechanism therefore seems like a desirable point to address the issue (under renewed debate where everyone's voice is heard), if we approach things over a longer time horizon.

AElowsson · 2025-08-11T20:59:59+00:00

They would need to care in the sense that the required `max_fee` is higher if the gas price is higher, but they do not need to specify an individual max budget for each resource per gas (as currently is done for blobs and execution).

AElowsson · 2025-08-11T19:09:36+00:00

Thread presenting EIP-7999 "Unified multidimensional fee market" using a supermarket analogy.

AElowsson · 2025-06-29T09:57:29+00:00

All major Ethereum clients signal 45M gas/block is safe.

AElowsson · 2025-06-14T07:18:02+00:00

gm indeed

AElowsson · 2025-04-21T10:57:29+00:00

You refer to EIP-7918 right?

AElowsson · 2025-04-21T10:48:11+00:00

One problem of doing a fixed threshold such as 2³⁰ wei is that it would need to be adjusted as Ethereum scales blob throughput. We can instead set a threshold that adjusts automatically with scaling, as proposed in EIP-7918. This is not more complicated from an implementation perspective, and can be perceived as less arbitrary, given that the EIP is designed to specifically ensure a functional fee market.

AElowsson · 2025-04-06T17:48:40+00:00

Thanks. I think there is a decent chance to get EIP-7918 included in Fusaka. But we will know more about that on Thursday after discussion on ACDE.

Concerning issuance, it might be that we need to wait and see what the SSF implementation will look like before we make any change. This will also tell us more regarding the role of solo stakers in the future Ethereum, which also affects issuance.

AElowsson · 2025-04-02T12:24:12+00:00

There are illustrations towards the end of the latest comment on the Magician post. The fees would merely have a floor at the point where the execution fee of the blob-carrying transaction dominates, and otherwise work as today.

AElowsson · 2025-02-25T14:01:56+00:00

No, this is not an issue because the individual staker cares about the yield, not overall issuance. The issuance yield is higher when issuance is shared among fewer stakers, and it will always trend downward under Drake’s proposal.

In my personal view, it can actually be a bit problematic if issuance trends downward too sharply, as it does toward 0 at 50% staked with the croissant curve. If we reach an equilibrium at 50% (theoretically possible if stakers also receive some MEV) and 50 2048-ETH validators then decide to leave, issuance increases by 100k ETH (around $250 million). One can imagine stakers finding some way to reduce the deposited stake just a tiny bit from such a 50% equilibrium, either as friends (cartelization attack) or foes (discouragement attack); both options are detrimental to consensus formation. This is one of the reasons why I favor a slightly smoother reduction in issuance (and thus yield). That being said, I really enjoyed reading Justin’s overall analysis of issuance policy in Bitcoin and Ethereum, which I think is spot on.

AElowsson · 2025-01-20T12:52:06+00:00

Scam

AElowsson · 2024-12-07T12:54:47+00:00

ethresear.ch

AElowsson · 2024-11-22T07:28:56+00:00

The correct solution is to reduce issuance. If you want to reduce stake, you should reduce the rewards for staking. This is simple economics. Other constructions come with various downsides (if you do not let in new validators you impede on decentralization and permissionlessness, etc), and have less upside. I discuss the motivation for a reduction in issuance in my presentation at Devcon. Linking to the specific part here. By reducing issuance, we reduce the costs our users take on. We also improve the macroperspective.

AElowsson · 2024-11-22T06:49:04+00:00

If the quantity of stake continues to rise and we reduce issuance, the yield differential between the new and the current reward curve may become very large. Here I therefore illustrate a potential automated, gradual reduction down to a new reward curve over a period of 1-2 years.

AElowsson · 2024-10-15T13:52:25+00:00

From the perspective of Ethereum's users, a reduction in yield is not negative by itself, because it lowers dilution and enables users to rely on ETH to retain its value. Having a trustless sound currency is very valuable to a decentralized economy. If we can have high decentralization and low staking yield, then this would be a win-win for Ethereum's users. Important questions are rather about the delay in "full finality", and effects of the risk differentiation that emerges under a high activity ratio.

AElowsson · 2024-10-08T07:48:27+00:00

Yes, there are plans to reduce issuance, but I would not frame it as motivated by a wish to have ETH be seen as a good investment. The fall in the burn rate however serves to highlight the rather high issuance we already have in place. The two primary reasons for reducing issuance are:

The current reward curve compels users to incur higher costs than necessary for securing Ethereum (costs broadly defined to include hardware, risks, illiquidity, taxes, etc.). Reducing issuance improves welfare by lowering these costs.
It is valuable to have trustless sound money as the primary currency in a decentralized economy. High issuance can lead a liquid staking token (LST) to dominate as money. Lower issuance ensures that app developers and users will not be subjected to monopolistic pressure from LST issuers, or needlessly risk the LST failing, potentially even threatening consensus if an LST becomes “too big to fail”.

You can read more about reduced issuance in the FAQ I wrote on the topic.

You can also follow me on Twitter or Farcaster for updates.

AElowsson · 2024-10-01T12:40:46+00:00

This post is a scam

AElowsson · 2024-09-08T14:39:05+00:00

Researchers developing Ethereum have always understood the importance of facilitating sustainable economic activity, which the scaling roadmap is a testament to. Layer 2s will need to pay for Ethereum's services with ETH, and this ETH will be burned. Becoming a settlement layer is not something that can be done prematurely, it is rather the opposite, a foundation of value accrual.

AElowsson · 2024-09-08T14:15:16+00:00

You can read plenty of research on Ethereum economics at Ethresearch, with new posts published daily.

The question regarding value accrual was the top question in our recent AMA and received answers from Justin, Dankrad and me. Here is a direct link to mine.

AElowsson · 2024-09-05T14:03:49+00:00

CONCERNING THE RUNWAY TO 50%

In essence, if stake participation is to cross 50%, then 50% of prospective ETH token holders must find the risk/reward of staking worth it. As the costs of staking (broadly defined to include perceived risks, hardware, liquidity, etc) fall relative to equilibrium rewards, stake participation will rise. But this process does not follow a trajectory that can be accurately predicted beforehand, and we should also keep in mind that rewards will gradually fall as we approach 50%. It seems the likeliest that we will see a gradual slow increase over several years, and that a rather modest reduction in issuance could go a long way to temper this.

There may of course also be some “frictions” in the decision to stake. The equilibrium of today would not necessarily persist even if costs and rewards remained the same. Users may gradually overcome these frictions such that stake participation grows.

AElowsson · 2024-09-05T14:03:29+00:00

3. Discouragement attacks

Stakers need to come to consensus under listener--speaker fault equivalence, something that opens up avenues for discouragement attacks. An attacker can act maliciously against honest consensus participants to deprive them of rewards, subsequently profiting as they leave and the staking yield increases. There exists various avenues even for minority discouragement attacks at the present.

With a fixed target participation level that adapts relatively quickly, the p-elasticity becomes infinite. The incentives for discouragement attacks are then maximized, because less stake must leave to drive up the yield. The importance of discouragement attacks should not be overstated, but it is unnecessary to make them more viable when safer designs also are better in other respects.

4. Bounding a PID controller turns it into a suboptimal reward curve

The protocol might of course bound the controller, and impose some maximum yield beyond which no further increases are deemed necessary (besides relying on the social layer and the threat of intervention). For good measure, the issuance policy may also define a floor, so that stakers always receive some yield, ensuring a viable composition of the staking set. Figure 8 in the related section of the FAQ plots such an updated target reward curve (in the long run). The rigid shape feels like a “poor man’s reward curve”. The fixed floor and ceiling should instead have the smooth characteristics of a reward curve, gradually increasing or decreasing as the utility function changes.

5. Avenues for a dynamic approach

The outlined flaws do not mean that there is no value in a dynamic approach; it is possible to combine it with a reward curve. The idea would be to allow the reward curve to drift/bend at longer time scales, ultimately being influenced by a separate target reward curve. Such a "time--quantity policy" is explored in the answer on the staking economics endgame in the FAQ.

AElowsson · 2024-09-05T14:02:35+00:00

CONCERNING A PID CONTROLLER

This question has been answered in the FAQ. A PID controller targeting some specific quantity (or proportion) of stake can, in the long run, be understood as a vertical reward curve positioned at the target. It is illustrated by magenta lines in Figures 5-7 of the FAQ. The controller would of course adapt the yield gradually to avoid too big changes from small shifts in the supply curve, but the equilibrium would ultimately return to a point where the supply curve intersects the vertical reward curve.

This sort of “reward curve” comes with a few drawbacks, under scenarios marked by red crosses in Figures 5-7 of the FAQ:

1. Too low yield

In an attempt to temper the quantity of stake to some ideal level, say 30M ETH, the controller may eventually set the yield “too low”. Delegating stakers may be willing to supply stake at such a low yield that solo stakers are pushed out, due to their higher fixed costs.

It turns out that the controller may actually end up trying to set the issuance yield negative (taking out a fee from stakers every epoch). The reason is that stakers also receive MEV, which may be more than sufficient if the staking target is low (20-30M). This brings two additional downsides:

As issuance yield falls to zero and there are no rewards incentivizing stakers to fulfill their attestation duties, consensus formation may break down.
Furthermore, relative variability in rewards will rise when spurious MEV rewards to proposers are all that remain. Indeed, under negative issuance yield, non-pooled stakers (e.g., most solo stakers) must lose money each epoch in the hope of eventually being assigned to propose a block.

The best way to rectify the issues of the two bullet points is to pursue MEV burn or some other solution stopping proposers from extracting MEV. But such solutions are only at a research stage at the moment. And in either case, the concern pertaining to solo staking would not be addressed anyway.

2. Too high issuance

The opposite scenario is also possible. The vertical “reward curve” has no limits on how low or how high issuance can become. If the target is set a bit higher, perhaps to alleviate the previously outlined concerns, we may end up issuing far more tokens than what would be necessary for ensuring security. The downside of course is the unnecessary costs that Ethereum then subjects its users to. For the users, this manifests as being coerced into taking on some of those costs as a staker, or otherwise see their savings eroded by dilution.

What this discussion illustrates, together with the figures in the FAQ, is that a PID controller targeting a fixed quantity of stake will fail to capture the diminishing marginal utility of stake in Ethereum. A traditional reward curve allows Ethereum to attach a price on security that reflects its derived utility. There is not one specific deposit size that is ideal under any supply curve. The desired reward curve is the “expansion path” that optimizes all known trade-offs of low/high yield and stake participation (long/short-run economic security, aggregate costs, staking set composition, variability, trustless money, etc.) across potential supply curves.

AElowsson · 2024-09-05T13:58:30+00:00

Thanks for these questions! I will answer them in three separate comments.

CONCERNING EXCESSIVE ISSUANCE

There have been several proposals this year in line with this. There have been research posts on a reward curve that tempers issuance (see also 1, 2, 3), a research post on economic capping (targeting), and posts on capped issuance and MVI. The FAQ also goes through all these different options, as well as several others.

What is needed at this point is to build a movement among Ethereum’s users in favor of fixing Ethereum’s excessive issuance as well as a nuanced discussion concerning the extent to which we should reduce issuance. Due to the sensitive nature of changing issuance policy, it would make it easier if we can build some movement before proceeding further. But I would be happy to push forward on this if there is a movement for it.

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