The Ethereum Core Developers have approved EIP-7514 for the upcoming Dencun upgrade, scheduled for late 2023. This Ethereum Improvement Proposal aims to slow down the growth rate of ETH staking, allowing the Ethereum community more time to create an improved validator reward system. The main change brought by this EIP is setting the Max Epoch Churn Limit, the validator activation queue upper limit, to a constant value of 8 instead of the previous calculation based on the total number of validators. The decision was made during an Ethereum Core Dev Meeting and will be reflected in the EIP and associated CL specs PR in the coming days, as stated by Tim Beiko on Twitter.
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Beiko emphasized the significance of the change and shed light on the agreement among Core Developer teams. Additionally, Dankrad Feist, a researcher at the Ethereum Foundation, highlighted the importance of the approval by stating:
My reasoning on why I’m for EIP-7514. It is currently unclear if (especially liquid) staking will keep growing indefinitely. In the case that the withdrawal queue does not empty over the next few months, the lower churn limit will give the Ethereum community the time needed to research, debate and implement solutions.
Ethereum Devs Approve EIP-7514: Impact on ETH Price Implications For Ethereum Price
Ethereum Devs Approve EIP-7514: Impact on ETH Price. The constant increase of the staking ratio may result in a decrease in the amount of liquid ETH available for trading. If the staking ratio approaches 100%, it could lead to a scarcity of supply and positively impact the price of ETH. However, Ethereum developers are not advocating for this scenario due to potential technical and security implications.
The implementation of EIP-7514 indirectly affects the supply side of ETH, but immediate and direct effects on the price are not expected. Instead, any potential influence on the price would likely manifest over an extended period.
The goal of EIP-7514, as stated on GitHub, is to "mitigate the negative externalities of a very high level of total ETH supply staked before a proper solution is implemented." If the deposit queue remains 100% full, the share of ETH supply staked will reach 50% by May 2024, 75% by September 2024, and 100% by December 2024.
Despite the modest returns, further capital staking is not necessarily deterred, especially with the frequently substantial and erratic returns from MEV. Therefore, EIP-7514 serves as an interim measure, buying time for the community to deliberate and develop comprehensive solutions to the emerging challenges.
In summary, while the immediate effects of EIP-7514 on the price of ETH remain to be seen, its long-term implications, particularly in terms of staking growth and supply side management, could be significant. The community and investors will closely monitor the aftermath of the implementation of this EIP in the Dencun upgrade.
ETH Price Builds Momentum
As of the time of writing, the price of ETH stands at $1,628. Yesterday, the price of ETH rebounded from the 78.6% Fibonacci retracement level at $1,536. To sustain its upward trend, it is crucial for ETH to break above the 20-day EMA at $1,639 and subsequently surpass the 61.8% Fibonacci level at $1,665.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.