Ether news: Ethereum could fund soon projects with up to 10% of staking rewards

Ethereum’s long-running funding debate has a new proposal: Make validators, who secure the world's leading smart contract blockchain, pay for more of the network’s shared costs.

The proposal on Ethereum's research forum introduced “validator redirected revenue,” a protocol-level mechanism that would let network operators to send part of their staking rewards to ecosystem funding. The redirect rate could range from 0% to 10% of staking rewards.

Validators would signal how much of their rewards they are willing to redirect. If a majority supports a rate above zero, the contribution would become mandatory for all validators.

That is the proposal’s purported answer to Ethereum’s "free-rider" problem, in which many projects benefit from shared infrastructure, security work, research, tooling and public goods.

But no single actor wants to pay the full bill when everyone else can benefit for free. The result is underfunding unless the Ethereum Foundation, donors or a small group of motivated teams steps in.

Validators are entities that keep Ethereum running by locking up ether (ETH), checking transactions and earning staking rewards for doing so. Funding, in this context, means paying for the shared work Ethereum relies on, such as developer tools, security research, public infrastructure and other projects that help the network but do not always have a direct business model.

The proposal seeks to shift that burden toward validators, who earn ETH rewards for securing the network and benefit when Ethereum becomes more valuable.

It argued that validators are natural long-term stakeholders because better ecosystem funding can increase network activity, ETH burn and the value of staked ETH.

Validators could also select preferred funding recipients under the proposal. Those preferences would be combined into a 'splitter' contract that distributes redirected funds among chosen addresses. The design is meant to let validators “set and forget” their preferences rather than vote on every grant.

At current staking levels , the post estimated that validators receive roughly 700,000 ETH a year in rewards. A 5% to 10% redirect could send about 50,000 to 70,000 ETH a year toward ecosystem funding. That equates to about $120 million at ether's current market prices.

The idea is likely to be controversial, however.

One risk is validator cartelization. If a majority of validators coordinated, they could raise the redirect rate and route funds to themselves or favoured groups.

Another risk is the gap between staking operators and the ETH holders who delegate to them.

Most ETH is not staked by people running their own validators, but rather through staking firms, liquid-staking protocols or exchanges. Those operators may be the ones setting the funding preferences, but the lost yield comes out of the rewards that belong to ETH holders who delegated to them. This effectively creates a gap between who makes the choice and who pays for it.

There is also an issuance question. If validators are willing to give up part of their rewards, critics may argue that Ethereum could simply reduce issuance instead.

As such, the proposal is a starting point rather than a finished answer, with discussions actively ongoing before it moves (or doesn't) to a formal voting process.

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