Ethereum Has an Issuance Problem

Transcript

Bankless Nation, the debate around the EIP that changes ETH's issuance policy is not over. On this episode, I have Jerome Dece, 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. >> Thank you so much for having me. I'm also a solo staker and uh the official number is 8363 now. So if you're looking for the uh >> Yeah. >> Also joining Jerome is Sam Sam Jernigan.

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. Uh Sam, welcome back to Banklist. >> Nice to be back. Drum, let me just start with you since you're the the core author and you really introduced this EIP into the zeitgeist and has caused much of a nashing 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?

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

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

more E is printed there is an incentive to stake that never really switches off. uh even at 100% of E at stake which would be like the limit max limit of course like 100% of E at stake we are about 1.5% yield uh there's potentially no equilibrium possible for the staking market like all E will want to go at stake at some point and for the silent majority the Eve that are not yet at stake um well they are paying for staking through delution so um that's what we want to address and um this EIP as um uh the the uh the um uh conclusion of many years of research and uh and

also uh of the urgency of making this change now otherwise the more we wait the more painful it will be. So we are introducing an off street uh a guarantee that uh the market will find an equilibrium uh a burn that grows with the staking ratio. The more if at stake the more a portion of the reward are burnt. So the rewards will taper to zero at around half of the E at stake and in practice the market will of course stop well before that. Um actually where the the staking uh this the staking market will find its equilibrium. Um and um and whenever the participation ends up being low which is very unlikely the the curve still pays very well. So it guarantees

that uh we have a good security for the network. So it's also sitting on a research like minimum viable issuance making sure that we are not overpaying for our security and uh something I like to stress from the get-go is that we have a history of uh not overpaying for our security and making changes in our monetary policy often time at at Ethereum but always in the same direction uh downwards like issuing less deluting less holders and that's precisely why we're having this discussion right now. I think a lot of what you said uh Jerome checks out to me and also at the same time uh in order to change the monetary policy around ether, you need to have overwhelming evidence that this is not just uh 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 uh you know uh in vanilla ETH holders are paying with dilution >> 50. Yeah. Um but like but the incentive as you as you said the incentive always goes and approaches 100% of total stake. 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% uh nominally uh on 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 uh is an addressing a very large issue? >> Right. Thank you again for uh for having me and including me. Um I I do think this is a a very important uh topic and um 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 um but and I think that's something we should get into um um I mean arguably the the risk to Ethereum's credible neutrality is is well short of 50% but we feel like that is the absolute um firewall. Um once you go past that point, you have more basically uh uh 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 a smart contract bug or a hack, um, 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. Um and even today um I you know I would I would ask you you know if let's say I think Coinbase's market share for staking is I don't 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 um of the validator set

and if they were slashed or if they were hacked or there was a smart contract bug of some sort. Um my guess is that there would be significant calls right to uh to roll back that event similar to what we saw with the Dow hack back in um Ethereum's earliest days. And I think that it should be a very cautionary tale um what just happened with Kelpdo. this dimminimously small pool of um 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 um I I will just tell you I was very surprised to hear large players

in our space that viewed that that as a systemic event uh for uh the lending protocol that was um involved in that incident. And I was telling people that were asking me at the time, no, this is not a systemic event. That's you know that the total amount of ETH in that lending protocol is less than 5% of all ETH. That's not a material amount. And yet people thought it was a systemic amount. And so that is um not I mean it's a it's a insignificant microcosm of the type of risks that you're opening up uh the core consensus mechanism to if you're talking about um 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. 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. Um, well, I think unfortunately it would likely be u

a decision that meaningfully hurts Ethereum's credible neutrality. >> I think that that's just the one kind of very obvious point. >> Yeah, there's there's a ton of uh moraliz coming out of a big Pandora box where lots of things get intertwined between the consensus layer and the execution layer. Uh, sticking to everybody else that mingle into DeFi. uh 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 uh beyond more purely credibly credible neutrality problems like uh at what stage do we consider that the the network has been captured and we start to censor uh transaction and so on but um um if we look at 34% uh what is what

what concretely breaks at 50 55 60% that is not really broken at uh at at 34 very simply Simply put, it's our last line of defense. Um the ultimate backs stop for uh Ethereum is on code. It's the capacity to have social coordination backed by unstake if and past the half of the supply being staked that reserve is just a minority. Um and it and the drift just compounds of course because the more E is at stake, the more everyone else gets diluted, the more people feel forced to stake just to keep up. um and ro gets displaced by staking tokens and rappers and staking derivatives and it's it's just replacing the working money in the whole system.

But here is uh here is something I like to underline here. What really breaks is also our ability to fix it. The coration uh itself gets more painful with every point of um of ratio that is climbing climbing up. Um so fixing the fixing the issuance when we have 20% of E at stake is much easier than fixing it when we are at 34. So I wish we had those discussions like four years ago uh and it's going to be meaningfully harder uh 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. Um also uh without even

talking about lean and the the the the road map for Ethereum to change its duty for uh for the validators and so on uh that will imply also a change in the issuance. So we have the opportunity right now to do this change um but also to make sure that uh we pick a new issuance and a new monetary policy that we can stick to for the next 5 to 10 years at least. So I I think I think um Durham hit on a couple of points I'd like to just elaborate. One on this issue of of capture. Um W I will not support and Wall Street will not build on a chain that has been captured by a cartel of small interests. Um and so maintaining um maintaining Ethereum's

credible neutrality by preventing the validator set from being captured by a small group of actors is absolutely critical. uh we're wasting our time here if we genuinely if we allow that to happen. I think that um so that is that's absolutely paramount whether it's censoring transactions or um 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. Um so this is what uniquely separates uh Ethereum from every other proofofstake chain. I really only took on this uh this direction in my career and my life uh with the explicit understanding that

Ethereum was committed to um capping the validator set at somewhere between I mean Vitalicus said as low as 15%. You know I think um now we're basically allowing it to go all the way to 50. You know, I think Justin for a very long time and and most of Dankard and many of the other uh 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 ofstake mechanism for Ethereum believe was a mistake.

um that it was always meant to prevent um the validator set from uh growing much larger again than this kind of 30% or even I think they used to say say 30 million but that was when the total amount of ETH was closer to 100 million rather than where it is today. Um but it was always supposed to um cap the validator set. Um 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 uh uh the client teams understand that the lean road map 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. Um um 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. I don't think it will happen if we don't stop it now. Um if 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 um between now and when lean happens and when the next issuance change needs to occur that um much of it won't happen. Um and even with the current the

this two-year time period is is too long um in my opinion. Um but I so I think it's important to understand for for those that are against this that this is already uh a um um a compromise. Self >> custody won, but it still has a usability problem. A seed phrase on paper is still a single point of failure. Phones get lost, devices break, backups disappear. Bitkey is a self-custodial hardware wallet built for that reality. It uses a two of three multisig with keys split across your phone, the bit key hardware device and block. No single key can move your Bitcoin and block can never move it alone. There's no seed phrase to lose or expose. And if you lose your phone, your Bit Key or both built-in recovery gives

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Introducing the Bankless MCP. Chad GBT and Claude are great at a lot of things, but ask them anything beyond the basics of crypto about protocol mechanics, tokconomics, or just what happened last week in crypto and the gaps will start to show. The problem is context. Banklist, 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. So you can go and connect it to your Claude or ChatBT. 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 Banklist premium subscribers. So you can go to banklist.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 banklist premium member, you can hop into the Banklist Discord and let me know how you like it. I I see Ethereum stuck between trying to maximize two desires, both of which I think are are noble. One side is I I think the side that you guys agree with which the philosophy of the Ethereum protocol is one of radical self-s 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 self- sovereignty 100% uptime in in every single respect. And I I see your guys's arguments as to how this is congruous with that. That's one side of a polarity. 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. uh 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 and solving problems and so you know one of the arguments is that this EIP preserves the value of vanilla ether well on in a 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 a so we have the the private market solving some of these problems. 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 A. 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 uh when in har in harmony

these two things together actually produce you know 1 plus 1 plus 1 equals three that's the other side of the perspective and so like I I think that 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 is is um going to be harmed by this. And that's the perspective that I see. Okay. So, Sam Sam, take take what I've I've said to go first. Sure.

>> Sounds like you guys are ready for this. >> Okay. There's so many so many places I want to hit there. I want the the diplomat to go first and then I'll go and then he can clean me up. >> Okay. I will um I will I will never go to the extent of calling A and Lido a cartel. um I think they have brought tremendous uh good to the to the ecosystem and uh naturally this EIP is uh impacting portion of their business directly. So it's very uh very expected that them Ephi and so on are the first to react and over the years they've been very good stewards of of the protocol itself.

Uh it's funny when you said like um look uh it's like the monetary policy the the Fed decide this and decide that. Well, uh when when the Fed put his its rate at uh 12%, suddenly uh the Fed's rate just beat everything. So everything goes to the Fed. Uh that's the kind of situation we are in right now. Like uh the there is literally no strategy that involves if maximizing that cannot involve staking because staking is notoriously low risk for many different reasons. in terms of uh infrastructure maturity, in terms of slashing protection at the client level, in term of uh of uh amount of different derivatives you can touch

on and also too big to fail effect uh that nothing nothing can beat staking. So we currently have a a de facto uh best thing to do with our ETH that is putting them at stake. But before that the before we had staking I mean a pre-emerge and uh and even pre-launch of the pre- proof of stake uh we also had a D5 ecosystem that was very healthy with a similar TVL if I'm not mistaken. So the the the situation that we are in right now is also something that we have fabricated with our uh lack of uh understanding of what the behavior of the staking will be at the right side of

the curve. Like a lot of research went into uh making sure that we are paying enough uh so the so the curve is good enough that people want to stake early on without knowing if and when they will be ever be able to withdraw. uh but we didn't look at uh our our capacity to um to actually uh uh make the market rich and equilibrium in terms of um of staking. So that's coming back to the first point like yeah we need to we need to make Ethereum a radically independent incredibly neutral thing and so on and uh I'd love to hear at some point the the original uh designer of this curve express themselves and said like yeah maybe we made a mistake we should have look at look at this differently. Um now from from a pure D5 standpoint I think

D5 will be fine and even will be in the better shape after this change uh the staking rate isn't free income at all. It's it's funded by diluting every holder that doesn't stake. That's that needs to be understood. Um what what we are removing is a is a subsidy for uh DeFi's own users that they they are paying through a back door. um like yeah you get you get you get subsidized uh to uh to to go at stake we don't need this much of this much e at stake uh but you are paying that for dilution but you have to know also that defy has already repriced for for much bigger version than this like the the rate fell from 20% to under 3% uh at the staking level

um over the years and the lending market adapted uh different staking der have adapted as Um here we have a change that propose um a published formula that has two years of runway you can adapt you can build around it. Uh and I think that some spread will survive uh some other will shrink a little bit. Uh what's missing that's been uh that's been asked notably by Stan is like yeah but where is the cascade model of the LST and the lending impact and so on. Um, and I'm I'm I'm I'm trying to come at them and say like, "Yeah, you have the numbers. You have um you have the research team and the risk teams. Uh let's team up. Uh my DMs are open. Uh both the E for CEO and the the

A 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 that we need to make on this curve to make a smooth landing for everyone. But that doesn't change the problem. We are paying too much for our security and we are overdiluting our asset and slowly pushing all E to go at stake and just replacing it trustless money with governance money and that's that's not what we have signed for >> with the argument around ether dilution. I I want to push back a little bit on that uh 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. Uh 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 moneyiness as possible. >> Well, you want to preserve it as a portion of the overall set of holders. >> Yeah. >> Yeah. Uh 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 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 uh in in ETH stake every single year. What is he is he doing? I mean maybe 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. Uh but I do kind of want to throw that one at you guys. Be >> before Sam, I'd like to respond with two bones that I will throw throw back at you in this case. Uh the first one is that the the the issuance is going to be 0.9 like in a few weeks something like this.9%. Okay, that's fine.9%. uh 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.3 or something like that but never mind let's take this delta for for this case so that's 04 delta um this point4 delta at today's price is give or

take one $1 billion okay can we can we save $1 billion can we not over print $1 billion well uh on a couple of hundred million billion dollars as a market cap. I think that's that's that's a meaningful cut. That's that's a meaningful way of doing things. So it's uh this this um this is not a small amount. Uh but indeed when we compare delution we're like hey look bitcoin is diluting its holders by8 and in a couple of years they will have a hing there will be point4 and so on and so forth. So if we are comparing ourselves to the leader uh in term of market cap like yeah we are in the we are in the weeds like we are in the in the same shape uh and we are much more

uh conservative and less dilutive than all of the rest of the uh of the um of the proof of 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 um some of the some of the holders of E that are uh the most uh the most ether for maxis they are also staking and they are making money out of this but are they making this money are they choose choosing staking uh 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 this is what pays the most um if you have a vault on uh that's that sole purpose is to uh sgest to to provide

liquidity and and write the volatility of E and that this vault is super long if and very conservative that's exposing itself too much like trying to keep up the the principle as much as possible and it's paying 1.1 or 1.2%. Uh you're never never going to have Tom Lee provide liquidity to this when he can have uh at least 1.5 um uh at stake and more likely between 1.5 and 2.2 for the next two to three years. So we are preventing uh other D5 application or D5 usage of E if that will be much more beneficial to the price action and the the market setup of E if to arise by just funneling all the E if towards

staking and that's not even considering the the the security problem and credibleity problem comes at it. So that's uh that's that's my two points on this like uh it's it's not a small change in terms of budget impact. uh we are going to save a lot of money and also we are going to let if be allocated to more productive thing than just adding a little bit of marginal additional security at the cost of uh of potentially uh losing our own social stuff. 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 Ganskar actually mentioned this in his recent uh little note. Um you are taking a dollar from one pocket and moving it to the

other pocket. Um uh so you're taking your sub you're basically you're taking money out of your left pocket and you're moving it to your right pocket um with uh with issuance. And in this case, you are doing it to encourage um um an activity in this case to secure the um to secure Ethereum. And any penny more than what is absolutely required um risks um well first of all that it's excessive uh and it's um it's imposing an excess tax on the system itself, right?

um obvious obviously much more so on um those who remain unstaked and that's why everyone will go to becoming staked right to avoid this excess tax. Um but anytime you know there are all types of um um additional um side effects of this one is that you are effectively subsidizing an activity. Um, and this is actually very similar to uh the uh subsidy that the US government kind of implicitly gave to housing leading up to the global financial crisis. You encouraged excess risk-taking um in this behavior. Um, you know, the zeitge guess was um, you know, everyone every American should own a home, right? And, um, you know, there

were Fanny and Freddy provided very, um, basically government guaranteed uh, uh, lowered uh, lending rates uh, 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 uh that built up leading up to the global financial crisis is very similar to the subsidy that we're giving to looping um looping ETH basically. And I don't mean to suggest that I think that the amount of leverage is high or worrisome. It's not at this point, but it's the same type of thing because of this uh subsidy that the protocols I've been shocked that they think that

they're entitled to this um they're they're entitled to take money from me, the non-technical uh uh Ethereum who doesn't uh I share a validator with uh with a friend. Uh 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. And so, you know, in a lot of ways, um, 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 uh 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. Um so the most dominant or uh 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 the more too big to fail that they are uh

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 a I'm sorry, not a 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 build out and that is sad that is it's depressing. Uh when I first found out about that I was speechless when this person told me at dinner it was almost uh uh almost two years ago it was uh in Brussels this is not a problem we can wait any any longer to to handle. I think let me also address this issue of um somehow being bad for DeFi. I totally disagree. I was shocked by this. I was very surprised.

>> Um you know I think that um um first of all again >> let me let me set up the the question for you Sam. like after my podcast with uh Stani and Mike from A and Etherfi, the the takeaway that they think will happen if this EIP goes through is there will be a mass exodus of ETH out of DeFi because the staking yield will be lower, the incentive will be lower. Do you do you think that the subsidy to loop your ETH will be lower?

>> Yes. Do you think that's accurate? Do you think that as a result of this EIP there will be less ETH in DeFi? >> 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 >> with with with a reduced subsidy in of ETH because the issuance is lower. You think the looping will increase? >> Yes. Yes. >> I thought you want I thought you want the looping to >> 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 uh ETH is uh has too high inflation. Uh it's it's too much for the market and it's suboptimal, right? And all 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 basically a combined fiscal and monetary policy. We don't have Congress that uh that you know funds programs spends and and and an independent Federal Reserve. We have a joint >> that issues. Yeah.

>> Correct. Right. >> And so >> spending and issuing is the same thing because >> 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 days ago. First of all, I think that uh the price of ETH is going to go up when you reduce the uh issuance. Um I think that is just mechanically mathematical. I think the second partially because this is unexpected. An unexpected monetary

policy change that is a tightening of policy should almost you know by default result in a uh a positive price action 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 push back against this is actually beneficial. to all of Wall Street and all of the companies out there are going to learn what makes Ethereum different and special um you know they're going to realize that Ethereum is not able to be captured that it is the most credibly neutral and um 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 uh a fiscal monetary policy that a country has, the more robust and and uh 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 uh strength of our fiscal monetary uh uh policies and a robust national defense and so >> and and our court system as well like our court of laws >> the rule of law right >> the rule of law yeah

>> 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 seed one possibility. I think that maybe on the margin and I think that this would be good for everyone certainly in the instate but maybe on the margin you could see you know you'll see um 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 um will maybe on the margin uh uh 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. I I think it will be um 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 uh some of the guests that have appeared on your show and others that on Twitter is that they're being basically very shortterm uh oriented and frankly very negative. Like my vision for Ethereum is so much grander than theirs. I I just don't even understand why they would want to uh optimize for this short-term outcome when, you know, when when sitting at sitting on top an ETH, you know, an Ethereum that's worth 10 or 20 trillion versus one that is relegated to a future

like Cosmos. Uh 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. I I want to hear a little bit more about why you think uh this would be good for DeFi. Uh 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 uh 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 approach to approach 50%, why loop at all? Like the incentive dries up so much more quickly. >> Other things to do than just loop is what I'm saying, right? you know, you could pay all types of other things that but builders aren't going to be uh there's not going to be the interest, the capital >> and the motivation to explore those others when they're being crowded out by uh this excess issuance that is solely go that is being only routed through the consensus mechanism into looping. I would like to jump in on the on lending itself like um if you if you take lending what's the future of lending in the next um six to

18 months um you have a massive amount of LWA and tokenization that's coming to uh that's coming on blockchain. Hopefully they will stay on on Ethereum and that would be their their uh uh main pick in term of where to where to land. Uh that's that's just the repo markets, the global repo market that is going to change and use those kind of venues to uh to fun to function differently than they were before 24/7 with lots of advantages. I want to see Epher as a pristine collateral in those case and not just something that you uh loop on like just like the natur the natural thing to do. So um there's um the relationship with less dilutive more

price um 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 um it's it's a very complex spectrum to navigate but it's not just the amount of ea stake it's the value of the amount of investic. So we have a we have an opportunity here to even get more security by pushing the price up and one of the reaction we had um one of the reaction we had is uh very often time people were saying like hey it's just small you know it's just um 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 term of amount of fifi going at stake and thus we are trending up in term of in term of dilution so the the market recognize that this solution is ongoing and it's compounding and it's not going to stop. So when people are saying like 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. >> I have to say it's so bizarre that Ethereum has become the opposite of um Ponziomics. Now we want to do the opposite. We want to like dilute, you know, I mean like 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 to secure Ethereum makes the price go up. You know, this is um this is a rather strange, you know, dystopia of a very long bare market that Ethereum people have have somehow lost um this kind of >> basic uh perspective. >> Let's just let's just look at what happened when we have a more eic uh just from a market perspective. So um when half of the E are at stake by definition half of leads are not a stake. When 60% are stake, 40% are uh not at stake. Um one of the driver of uh large purchase on the market is of course uh how how

big is your slippage uh how how deep is the market. So as you send more E towards staking you are limiting the amount of E that is available for purchase. So some people may say like yeah this is great like there's no more E on the market because all the E are going at stake but it's not good for the price. who want to hold an asset that uh whenever you want to sell it still you'll have a uh the price action is not that good and whenever you want to sell it the the sleepage is one or two%. Okay, this is also something that that boils down to how Defi function. It's it's not just a repo market and lending.

Uh we have Dexes, we now have a very uh uh complex strategies that are available, very sophisticated strategies that are appearing with uh the new venues that are popping up. Uh I you had Moro on the on the on the podcast recently. Uh we know also that uh that um A is doing things with V4 and so on. Uh this is getting very sophisticated. Now we have things we can do with our ETH that are not just looping and we should give uh those alternative a decent chance and also not due ourself make Etherum the pristine collateral it should be and also the money it should be the trustless money it should be for the global financial ecosystem. I think what I'm hearing from you guys is that if we reduce the subsidy, we reduce the amount of new ETH 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. I'd be curious if Jerome disagrees, but but but I mean in traditional economics, you you know, crowding out is the term that's used, right?

>> When you hear from uh from um ETF issuers and DATs about Bitcoin, they 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 uh we lower the issuance." That's that's actually the play of of Bitcoin. Every four years, uh, we just have a we just have having and we said like look, it's getting rarer. Uh, and some people are saying like this won't apply to Ethereum. Like okay, well that's I will I will definitely detect this. Anyway, uh weird beauty of Bitcoin beauty of Bitcoin is it simplicity of just saying like it's 21 million and everything else is uh hidden behind the curtains. You

don't really know if it's going to work or not. We have the opportunity with DCIP to uh make a very clear statement statement that is the max delution 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 delusion and that's actually something that is started to arise in the discussion that we've been having for the past uh 10 days uh the heated discussion about issuance is that some people how however uh sophisticated you think they could be because they've been in this space for like 10 years some sometimes more like they've seen all the things on DeFi and so on and suddenly they're starting to realize that their

yield is actually delution adjusted oh well I need to adjust for delusion. Yeah, you need to count that into your into your calculation. Um, and the the 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 I'm getting how much? This much, but where is it coming from? It's coming from issuance. Okay, so there's a delusion, 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 the arithmetics just doesn't fit.

That's 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.5 keep it easy to easy to frame I'm not super hellbent on the 0.5 maybe 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.5 is achievable and it's it's good for our security overall. We should not let this uh this opportunity >> I want to talk about Tom Lee because Tom Lee has been the single largest buyer of Bit Mine has been the single largest buyer of ETH in the last year by far

because he's plowed like 12 billion dollars into ETH and like one of the one of the reasons that he did that was the staking yield. Uh so Bit Mine is getting something like a quarter billion dollar 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 we if this proposal goes through the recent single largest buyer of Ether ever who just plowed 10 billions of dollars$10 billion into ETH 12 billion into ETH with the promise of getting staking yield is not going to have the staking

yield that that the monetary pro 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 is kind of like an 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 he is using to sell Ether to everyone else. And so despite all of your guys' arguments with which I think are good, I'm the optics of it of changing monetary policy right

after our largest buyer ever buys a bunch of ETH is is not great. Uh Sam, how would you respond to that? >> Well, um I've known Tom for a long time. Um at least 15 years. Um and um Tom is very smart and I think that Tom would much rather uh get 50 bips or uh 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, um I'm I I would be surprised if Tom um um did not um um you know, you know,

I would be surprised. I have not spoken to him um directly and I don't want to speak for him but I would be surprised if uh if he did not uh 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 principle versus uh the value of your coupon and um I think that I made I tried to make this case to um for solar stakers as well. Um, you know, you are not going to get the type of price appreciation or short, medium or long-term that you would get with an

optimal, uh, uh, um, issuance setting for Ethereum. And so, um, again, just going back to Tom, if I look at, you know, his forecast, you know, he's as bullish on, I think, uh, the future of Ethereum as I am. And um so I would be very surprised if he didn't see it the way that I did and want to earn uh 50 bips or 1% on you know you know a 30,000 or 50 or $100,000 uh ETH that uh where Ethereum is the credibly neutral uh settlement layer for the global financial system. Um and the alternative is you keep your 2% and we are on the road to cosmos. Uh

which literally the atom token goes down every single day and the analogy between here is very similar. Um um and I think that this is um you know I think so that that's that's how I feel about it. You know maybe Drone can weigh in differently. >> Yeah. I remember back in um late May or early June uh Tom Tomley tweeted that uh he is not opposed of an issue change but it has to come with a large consensus and uh be uh whatever like prepared and so on. Uh and he hasn't expressed himself on the matter and I I hope he will at some point. Uh but let's take the let's take the opposite argument like um if if issuance is really like if

if staking yield is really bringing if up without any consideration regarding security uh yeah why don't we like 2x or 3x or 4x the uh the yield and and see what happened like uh yeah if you can send us to NK let's go and uh and made the made the trip uh why not but as as Sam just said like um when you are in an ETF you have your principle and and and your coupon. Uh you see the you sell the yield as a coupon. So sometimes you you must have a a hard time explaining like okay it's paying 3% but uh that's that seems a lot for something that's supposed to hold value. Like is it holding its value? And then they open the the shutter like yeah it's sort of uh in this range but not

really moving around like yeah like nobody cares really about the coupon if the narrative on the principle is not something that's uh that's convincing. Um so I think uh opposing the insurance reduction from a pure DAT ETF perspective is twice detrimental. Like first it says well minimal minimizing delution uh is not so important. It says uh uh we're not 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 you you don't want the issuance reduced what is your reason oh you have defy problems and so on it's so

intertwined like we don't want to touch that yeah but about the asset is it's it's good to have resolution right yeah but you know like you're you're in in a difficult spot I think and secondly uh um 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 EH is just to to sit as a staking derivative or in a staking venue. Um mostly doing nothing uh not really promoting adoption or innovation, not you know not um not not helping out uh uh except for extracting some fees out of the rent. Uh but soon enough you'll

have the question like well the dilution is 1% the the yield is 2% uh what's left is just 1% adjusted. So is that really paying this much? Okay, I'm I'm going to uh I'm going to do uh uh a little repricing of the uh of the of the principle itself. So yeah, how is the principle supposed to raise in value if uh if we are not doing everything we can to maximize its security, its credibility and at the same time minimize the delusion that every holder has to bear.

>> Let's talk about solo stakers. The common response uh 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. uh and by reducing the amount of ether issued for security uh 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. But uh 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 to minimize in the first place? Sam, how would you respond? The history of proof of stake is that you know they have been overtaken by cartels right um >> pre other proof of stakes not Ethereum >> correct >> and um >> and so we're we're 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 >> yeah correct >> right >> solo stakers um uh everybody can come and say I'm a solo staker uh but sometimes they just have a they just have a solo staking node and they are posting gravities or or they've been active in the community for quite some time. Um and I can name uh probably 10 or 12 solo stakers that I know uh including me that are pro this kind of issuance uh this this kind of issuance change. The other ones are uh you know some are some are against some are uh more composed. They want to dig more into it. They got to make a better more informed decision to support it or not as time go. But you're right, like uh Ethereum has been designed to be solo

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

uh we've been correcting our own language and um trying to make sure that we we don't lead people into a misunderstanding that uh this EIP is saving the solo stickers. No, it's it's not. Um I'm not going to to try to uh to try to uh to try to to make it up. Uh we cannot claim that this proposal will preserve solo sticker share. uh we we don't like the the the research on the matter is genuinely split. Uh and we cannot pretend otherwise. Uh but what we claim is quite narrower. Uh today's curve pushes the solar sters out. That's it. That's that's what it does. Uh delution rises. Uh tax will hits and is already hitting the the nominal number.

Uh 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 solar sticker out arguably faster uh but it's it's split on the matter but I think arguably faster and we end up in a much worse situation a situation where we have more delusion and more concentration of stake in a few venues and way less solo stakers. So the the the tapering of the of the issuance remove uh the pressure regarding delution the pressure regarding tax on the nominal numbers and allow us to have an equilibrium and it's doing that without adding any burden um that lands harder on the small stakers

compared to the big stakers. So it's it's generally applied the same way everywhere. We are taking a a fraction of the yield from everyone with and no fixed fee overall. Um, so the status quo is not a good place to be in uh regarding the solo stakers and some solo stakers don't really realize that some stakers are like okay well I care more about my principle so you're cutting my coupon that's okay I want my my my uh my my principle to go up so they are supporting this because they they believe in the in the uh in the after effect regarding the price uh some are way less sensible to uh to costs like a fit fixed cost of $500 of of

hardware and time and so on. It's not that much. So they're like, "Yeah, I'm not sensible. I have 32 E already at stake. Um, but nevertheless, the the the tax effect and the dilution effect applies at first at the solo stakers level. Uh, they are the butterfly in the forest, as I like to um as I like to to to frame it. And the the status quo is hitting them harder. uh they will get pushed out whatever happened but the equilibrium that will be post uh uh solo stickers out may not exist and they will be out with much more delusion for everyone. So we we don't want to claim that we are protecting them. We want to claim that uh we are making

much better fashion. >> Yeah. >> Yeah. >> I think unfortunately there'll be nothing to protect. I mean, uh, like I said, I share a validator with a friend. Um, but if I'm not bullish on the long-term outlook for eat the asset, um, that activity is not worth it to me. And so, I'll probably, you know, uh, ask that we shut down that validator. >> Yeah. As a as a solo stakers, you have the operational risk and the, uh, yeah, you have the operational risk to bear. uh but when you are uh putting your money into an LST you have the uh uh operational risk and also uh the the the risk that's in rented to the the LST uh arguably the the operational uh cost of

the solo stakers are higher uh 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 the a yield amount that is both enough to save some solo stakers and also to have the market lend the equilibrium at the same time. But we will come out first. Uh it's an open question. Uh but what's for sure is that the current status quo is very much detrimental to the city sters already.

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

there's not research on this and this is an unexplored uh topic area but you know for a very long time a lot of bitcoin has been mined in Iran um and China countries either where people want to get money out because uh for capital flight out of China for example where you you're effectively spending your R&B to receive leave Bitcoin and then swap that into Tether for example. Um or you know you mine in Argentina or Iran or places where the uh the inflation is very high and you want to uh again spend your local currency to get a an asset that uh retains its value

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

>> Um Yeah. >> Yeah. And maybe to uh to conclude on solo stakers regarding uh how we can help them actually what what what actually work uh for solo stakers to be more competitive with the rest. >> Uh you have anti-correlation at stationation penalties uh that is u now being proposed uh for inclusion in um in Hegota. Uh it's very I think it's a bit far from the original design uh of uh this EIP 7716. Um it's been redesigned and reshaped by Hosin from uh from Obo. Uh that's the kind of thing that will help solo stakers for sure. Uh and personally I I kind of support this kind of >> the economic requirements also go down significantly with lean. Correct.

>> Yeah. Yeah. And uh and we need also me burn. If you want to help the solo stickers, we need burn. That's al something also something that's going to uh tilt the scale in favor of uh other solo stickers. But again like the status score is inacceptable for solo stickers and uh once they will be all out we will be like yeah what we have a delution of 1.3 and we are in a in a in an inevitable trend of going up and up and up in staking as time goes. >> Markets don't move one asset at a time. One day it's Bitcoin, the next Nvidia, then gold and then the S&P. But most traders are still managing their portfolio across different platforms, different accounts and different pools of capital. Bit just changed that. Their

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We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best crypto cycle investor I know. His name is Michael Nato. He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point. I've been following him for years. And this year, we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes, they're short, they're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your

podcast YouTube Apple Spotify or find a link in the show notes. There's a new episode waiting for you. Now, >> 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. Um, what's your guys's plan to get this EIP through given that there's just seemingly a lot of hostility and contention around it? >> Well, very simply put, we're going to keep our heads up, continue to respond to the different arguments that uh we are facing, adapt uh see if we get uh see if we get good reasons to modify the parameters that we have laid out.

um and let the let the PFI process continue like uh we have a like the 26th of of October for the consideration for inclusion deadline. Uh we want to let this uh this debate continue. It's great to see that people are uh more and more informed on the matter. Uh we are getting u uh interesting feedback to adjust. Um some people are complaining that this should have been withdrawn already after just 10 days. Uh but to the contrary like we are getting a lot of positive things out there. Uh we are trying to find uh the the a rough consensus on where it should go um and how we should adapt and I think

you'll be surprised by the the type of endorsement that will come in the the following weeks as people get more accustomed to uh the problem and more accustomed to the risk of doing nothing. And if it's not for this fork, it will be for the next one. But the gentle path is now. So we should not let this uh window of opportunity close. >> 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 um this this issue has been going on for at least 5 years. Um so much so that the researchers who worked on it have almost all given up. uh my friends over at Eth Labs

unfortunately um I mean they genuinely have burned out on this right this goes back to at least 2022 at that time we put in place uh an asymmetric uh change to the validator queue to slow down the rate of new entrance but uh left it uh unchanged for exits because this was a problem known then and it we wanted to provide more time maybe it was 23 3 2023 wanted to provide more time for robust research. Um you know Onsgar and Casper came back in 2024 with a proposal. It was brought before all cordvs and Lido uh raised concerns and it was shut down.

Um um that proposal was more aggressive than this one and we've had another what 2 or 3 years now um 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 I will say like uh you know while sometimes I regret my spiciness on on on X um it's it's you know I'm in many in many case look I I am in this space at the risk to my own reputation and career and I make strong statements uh at personal risk to my uh reputation career

and so you should you should appreciate that it's not done lightly. I'm not seeking Twitter followers or anything else. Um I'm doing it because I care very deeply about Ethereum. Um and um because uh I have gone allin on um on Ethereum and I don't see a path uh um without defending Ethereum's credible neutrality and this is the minimum we can uh do to protect that. And I um for me and again I do not think this is Jerome's position um but I I think for me this is a bit of an existential kind of moment. Um I think that Ethereum

community really needs to um uh 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 um originally maintained by Casper um called issuance.wtf. There's so much research there you'll never be able to get through it. >> Um but maybe point your yourt or claw edit and ask some questions. Um, 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 it, you

know, this is getting a bit um there are no real defensible remaining um objections in my opinion. Um, 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 18month, 2-year implementation. I thought it was unacceptable. Um, and yet I'm here because I am compromising. Um, I'm here defending it because I realize that we need to um, uh, do what is best for Ethereum, even if um, it is um, um, 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. Um, and I don't mean they being uh DeFi protocols. That was not what I had in mind. That this has been a bit of a surprise to us. What I really meant is the the staking service providers um because all of them have been involved in this debate. You know, Lido actually has an individual, Artum, who shows up at every single Ethereum uh uh foundation sponsored issuance conversation and he argues for uh is it maximal viable issuance? What is it? Um he he basically argues for the exact opposite of his of Ethereum's

historical position. So, literally they have one person who's I think he's he doesn't actually work for uh Laida. I believe he works for um Cyber Fund. Um and he shows up and literally is always given an opportunity to speak. He's published some some work on this. Um so this is not new. This is not new to anybody. It's not a surprise. This has come before all cordubs before. Uh this is something that is uh very uh uh you know well uh um traveled and so I I'm increasingly frustrated. I think that you could you could question 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 uh a uh a more active social media presence. Maybe Ethereum already is captured. I have a different uh a different view on that because I've I've been in the in the space for like 11 years now min mining in the early days and I remember the time where we had the difficulty bomb. So whenever uh whenever we had something contentious to pass on the rewards we're like yeah but let's let's have the difficulty bone kick in and um and suddenly like yeah it's it's it's making thing much easier to uh to adjust like because the whole network is suffering. We don't have a difficulty

bomb for uh for staking. Uh nevertheless we have uh we have lean coming up. Uh it's the next three to four years. Uh we are proposing a change that can last for a very long time and that's as a transition uh pass to it. Um neither neither I nor my my co-authors have any interest of forcing something through. Uh yeah, I want I want to stress that like uh we're not forcing things through. Absolutely not. But anyway, nothing nothing can be forced through in the in the EIP in the EI process.

>> I was about to say I 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. >> In any case, sometimes you have to say the the the unc the uncomfortable thing out loud. uh we 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 uh I can definitely see the light at the end of the tunnel coming up. 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. Um 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 need to be contended with. I do also take the arguments that um 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. Um I am somewhat worried about the optics of the monetary policy. I am also worried about um the lack of consensus around this EIP on an EIP that needs to have a lot of consensus to go through. Uh I think some of the arguments that people give is

like this EIP doesn't have consensus, therefore let's not do it. I actually think that's a bad argument because not having consensus is not a reason to not have consensus. That it feels like it's a little oraoric. Um I hope this conversation can continue. I think if we can get consensus on this EIP that it could be very good for Ethereum, uh, as you've alluded to, Sam, I think that's a long road. I think there's a lot of conversations that needs 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 you guys have any last uh asks of the bankless listen 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. AB >> absolutely if you are if older uh this will benefit you. So make your voice voice heard. Um indeed uh it's a contentious uh and and we are far from consensus at the moment but it's only been 10 days. So uh we are at the beginning of the process even if it's a short process uh we have a we have a way to get this through and 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 efolders. So it's um the time is now. Uh I want to thank David and the bankless uh uh community for hosting this uh two-part uh discussion and uh it is very

important to Ethereum. It's and um I want to thank Jerome. He has um really stepped up to I think provide a public service to Ethereum. Um something I don't think I could do. He's uh he's really uh he's really doing um 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. Um, and we're eager to, uh, you know, engage in constructive dialogue with everyone. So, you know, we're both pretty available. Um, you can include our Telegram and, um, Twitter handles in the show notes.

>> Jerome, is going to be a banger this year? >> Of course. 10 years anniversary and we have a lot of issuance stuff to discuss. No, just kidding. Yeah, it's it's happening. It's happening in April again, early April. Uh we hope to see you there. The the weather forecast will be as amazing as it should. Uh and uh yeah, hope to see everyone in uh in Can again in uh the 12th of uh of April. >> Jerome Sam, thanks for coming on the podcast. I appreciate you guys. >> Thanks for having us. >> Bank of 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.