Grayscale told the SEC on July 17 that it will start distributing staking rewards from its Ethereum and Solana ETFs in cash. The change is expected to take effect around August 7, at a time when both networks are weighing proposals to reduce those rewards at the source.
Solana proposes faster disinflation
On Solana, proposal SIMD-0550 doubles the annual disinflation rate from 15% to 30%. With that, the network would reach terminal inflation of 1.5% in about 2.8 years, versus 5.7 years under the current schedule.
Assuming 68% of the supply is staked, modeled nominal yield would fall from 5.84% today to 4.34% in the first year, 3% in the second and 2.25% in the third. The proposal also calls for 18.9 million fewer SOL in circulation over six years, about US$ 1.47 billion at the current price of US$ 77.97. The authors cite a reference value close to US$ 1.51 billion.
Ethereum studies burning rewards
On Ethereum, EIP-8363 was presented as a draft in early August. The text proposes burning a growing share of issuance earmarked for validators as staking participation increases, reaching 100% when around half of the ETH supply is staked.
One of the proposal's authors warned that, without the reform, more than 70 million ETH, or more than 55% of the supply, could be staked by January 2028.
Impacts for investors and validators
Solana's proposal treats native staking yield as a rate close to risk-free in the network's economy. With passive yield of 5.84%, other DeFi activities would need to beat that level to be worth the added risk; with the reduction, more capital could be directed to those uses.
For an investor who kept SOL staked for three years, the simple accumulated yield would fall from 13.15% under the current schedule to 9.89% under the proposed one. To make up for the loss in total return, the price of SOL would need to rise about 3% more over the period.
The SIMD-0550 model indicates that two additional validators would become unprofitable in the first year, 13 in the second and 30 in the third, among 738 modeled validators. On Ethereum, the debate points to more pressure on smaller validators, whose fixed costs are spread over less capital.
ETH and SOL holders who do not stake would benefit from lower issuance, since dilution would be reduced. The reduction in staking yield would also lower the minimum rate DeFi projects need to beat to attract capital. The yield, however, still involves risks such as slashing and validator failures.
Effect on ETFs and market resistance
Grayscale's model standardizes quarterly distribution of rewards to shareholders. With lower protocol rewards, the amount available for distribution tends to decrease.
Monetary policy changes face resistance from businesses that depend on staking yield, such as staking protocols, DeFi platforms and ETFs. Asset managers that charge fees on staking products now have a direct interest in how validator rewards are set.
The effect on prices depends on how much investors come to value scarcity relative to the yield given up.
