Vitalik Buterin, ethereum’s inventor, has suggested an increase in rewards for stakers from circa 2.5% to nearly 6% assuming 10 million eth is staked. Buterin said:
“An issuance increase is proposed based on community feedback, to
2**21 ETH if
2**27 ETH is validating, along with an agreement to set the base reward quotient based on a pre-set max issuance bound once all protocol details are finalized.”
Justin Drake, an eth 2.0 researcher at the Ethereum Foundation, said “targeting 2^25 ETH at stake (~32m ETH) for the long term feels about right for strong security.” He added:
“In such conditions, the base inflation would be ~1% and the base return ~%3.2%. Assuming each shard consumes on average 1,000 ETH in gas per year (about 100x less than what Eth1 consumes today), with half of the gas burnt, then inflation would be ~0.5% and the validator return ~5%. Feels healthy!
If we get significantly less than 2^25 ETH at stake then doubling the base inflation wouldn’t be unreasonable.”
Coinbase is known to have in its custody about 1 million eth. Once Proof of Stake (PoS) goes live potentially this autumn/winter, it is probable Coinbase will offer their customers the opportunity to stake.
Binance likewise has in its custody about 1 million eth. While Poloniex, which for some time was the main eth exchange, has about 2 million eth.
Buterin has stated the Ethereum Foundation might stake. Adding other potential big holders and subtracting the fact not all exchange customers will stake, achieving 5 million seems easy, 10 million is probable. Beyond that, it might be difficult to get more people to lock their eth.
There isn’t however much of a way of knowing. ICOs for example hold about 3 million eth. Yet the more stake, the less are the returns.
In addition, there is competition from other ethereum based projects that provide returns for locking eth, but staking might be more secure because if there is a protocol level bug, it is probable the network would fork. For a smart contract bug, it might not fork unless the bug is at the protocol level.
The opportunity cost however is a consideration for this very volatile asset. Thus only long term holders would stake, with long term here being perhaps a year or two.
The reduction in rewards as the amount at stake increases should lead to some balance which may fluctuate with more at stake during accumulation periods and perhaps less during high-speed price rises, although it may be the opposite due to the delusion effect.
At 10 million eth, the total new supply would be 0.6%. Then for some time there will be the Proof of Work (PoW) base reward which will be reduced to an inflationary rate of about 1.5%.
In addition they’re considering burning part of the fees to make transaction inclusion more efficient and primarily to ensure only eth can be used to pay fees rather than any other token.
Drake estimates 0.5% of the yearly supply would be burned through fees, so bringing the inflation rate at about 1.5% with 10 million eth at stake, almost zero once PoW is removed, and at about 2% with 30 million eth and PoW, circa 0.5% without the latter.
There is much estimation going on here however, but that circa 2% inflationary rate while PoW is running with it then not far off from zero once it is removed, has been suggested for some time.
That means ethereum may see a halving this autumn, to then be followed by BCH’s halvening and then bitcoin.