Scarcity may soon no longer be the prerogative of bitcoin. According to projections published by Grayscale, the annual growth in the supply of Ethereum and Solana could fall below 1.8% of gold by 2031. Indeed, several reforms are currently being debated, including EIP-8361 on Ethereum and SIMD-0550 and SIMD-0553 on Solana. If adopted, ETH’s annual inflation could drop to 0.4%, compared to 1.1% for SOL. This development is likely to reshuffle the cards between scarcity, staking yield and valuation of these two cryptos.
In brief
- According to a study by Grayscale, new technical proposals could drop the annual inflation of Ethereum to 0.4% and Solana to 1.1%, making them rarer than physical gold.
- The EIP-8361 proposal plans to burn an increasing share of validator rewards as staking increases, bringing ETH issuance to the level of Bitcoin.
- Thanks to doubling the pace of emissions reduction via the SIMD-0550 proposal, Solana is significantly accelerating its trajectory towards a very restricted supply cap.
- Although this squeeze will reduce the direct returns paid to stakers and ETFs, the increased scarcity could support token prices and turn these altcoins into leading stores of value.
The overhaul of the Ethereum issuance model by EIP-8361
On August 4, six researchers from the ecosystem, including Justin Drake from the Ethereum Foundation, formally submitted proposal EIP-8361, entitled “Tapered Issuance Burn”. This text aims to correct what the authors describe as artificial over-emission in the network’s current economic model. Today, validators can still claim a staking yield close to 1.5% per year, including in a scenario where almost all ETH tokens would be locked in the protocol.
According to the diagnosis drawn up by the researchersthis ceiling maintains excessive monetary creation without it corresponding to a real need in terms of operational security. EIP-8361 thus introduces a dynamic mechanism intended to burn an increasingly large portion of the rewards as the ratio of staked ETH increases, providing for a transition over 18 months to burn the entire rewards once approximately 60.25 million ETH, or half of the total supply, is staked.
According to the numerical modeling integrated into the proposal and analyzed by Grayscale, the annual emission of Ethereum would peak at around 0.5% for a staking level of 20%, before embarking on a downward trajectory towards zero as the network approaches the 50% plateau. In its central scenario projected for 2031, the asset manager estimates that ETH’s annual inflation would fall to around 0.4%, matching the pace of issuance anticipated for bitcoin over the same period.
This structural modification does not remain without consequences for the institutional financial sector. Grayscale also recalls that its own ETHE spot fund began distributing staking returns to its shareholders earlier this year, constituting the first crypto spot exchange-traded product (ETP) in the United States to implement such a mechanism.
Several fundamental numerical indicators summarize the technical and financial impact of this update for the Ethereum network:
- 60.25 million ETH: the staking threshold from which 100% of the issue dedicated to rewards will be burned at the end of the 18 month transition;
- 0.4%: the theoretical annual inflation rate of ETH supply projected by Grayscale by 2031, equaling that of bitcoin;
- 0.5%: the peak that the annual issuance would barely exceed when the network’s staking rate is around 20%.
Solana: the acceleration of the reduction in supply by SIMD-0550 and SIMD-0553
For its part, Solana is taking a distinct disinflationary trajectory, structured around improvement documents SIMD-0550 and SIMD-0553. Currently set at approximately 3.695% per year, the inflation rate of this crypto follows an initial schedule providing for a reduction of 15% per year until reaching a long-term floor set at 1.5%. The SIMD-0550 project proposes to accelerate this process by doubling the rate of annual reduction, which makes it possible to compress several years of gradual monetary adjustment into a much shorter time window.
At the same time, the SIMD-0553 proposal modifies the management of transaction fees in order to increase the proportion of SOLs permanently destroyed, preventing these cryptos from being reinjected with validators. The analysis conducted by Grayscale nevertheless demonstrates that the additional quantity of SOL burned via SIMD-0553 remains modest compared to the daily emission volume under current network conditions, confirming that SIMD-0550 constitutes the real driver of the projected drop of 1.1% by 2031.
This dual technical initiative is not the subject of a completely homogeneous consensus regarding its temporal feasibility. As the Grayscale research note expressly points out, these emission trajectories are based on strict assumptions of immediate implementation without alteration of other operational parameters, a condition considered unlikely to be scrupulously realized as is in reality.
The political and community dimension plays a preponderant role here. In a recent intervention, Zach Pandl, director of research at Grayscale, wanted to qualify the comparative progress of the two networks. He then asserted : “Solana’s plan enjoys broader community support and has a better chance of being implemented than its Ethereum equivalent”. This divergence in the degree of support of key players proves decisive for investors seeking to integrate this future scarcity into their valuation models.
Economic arbitrations of increased scarcity
The evolution of these emission models places community governance at the heart of the strategic choices of each crypto ecosystem. Although mathematical models anticipate a marked compression of token creation, moving from the proposal stage to that of actual implementation requires the buy-in of a majority of validation stakeholders.
The difference in support raised by Grayscale between Ethereum and Solana illustrates how political and economic considerations influence the adoption of technical updates. In terms of markets, the establishment of a scarcity greater than that of gold marks a step in the structuring of major altcoins into mature financial assets, capable of competing with traditional safe havens in the face of global inflationary pressures.
On an economic level, the switch to reinforced algorithmic scarcity imposes a complex arbitration between the unit value of the asset and the gross return perceived by network participants. By reducing the rate of issuance of new tokens, these reforms de facto reduce the nominal income paid to validators as well as to holders of staked crypto ETF units.
Zach Pandl notes, however, that a more restricted supply in circulation could support the price of tokens on the market, thus offsetting the mechanical drop in staking yield. The final equation will depend on the ability of ecosystems to maintain the security of their consensus while convincing staking players to accept lower direct remuneration in exchange for an underlying asset that is theoretically rarer and more robust in the face of traditional monetary pressures.
Maximize your Tremplin.io experience with our ‘Read to Earn’ program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
