Ethereum’s much-hated staking 'tax' may already be obsolete

Ethereum’s latest “funding crisis” has triggered a fierce debate over whether to tax staking rewards or to pursue funding from large ETH holders for new organizations like EthLabs.

Ethereum is running out of money, according to former insiders.

The warning has sparked one of the fiercest Ethereum governance debates in months: should the network fund developers by taxing staking rewards, or just rely on wealthy Ether holders to bankroll its ecosystem?

At the center of the debate is a controversial proposal from Kleros co-founder Clément Lesaege. He suggested redirecting up to 10% of validator rewards to ecosystem funding through a protocol-level mechanism called Validator Redirected Revenue.

Lesaege argued that this may be necessary to solve Ethereum’s “coordination failure” and reduce the underfunding of shared ecosystem work.

The idea was met with a wave of backlash, with critics warning of cartel-like incentives and a dangerous precedent for validator-led redistribution.

Validator Redirected Revenue proposal. Source: Eth Research

But just as the Ethereum community was sharpening its knives, a “credibly neutral” solution was forming: Ethlabs.

Unveiled Monday by five former Ethereum Foundation researchers, the shiny nonprofit Ethereum research and development lab is backed by the ecosystem's biggest supporters, including BitMine, Sharplink and ConsenSys founder Joseph Lubin.

Related: Ethereum Foundation sacks 20% of workforce amid strategic restructuring

With large investors ready to dig into their pockets, the real question becomes less about whether Ethereum can fund itself and more about how it wants to be funded.

The latest ETH drama began on Friday when former Ethereum Foundation contributor Trenton Van Epps warned that Ethereum’s core development ecosystem could face a “slow-burning funding crisis” within three to nine months as older support programs dry up and Foundation spending falls.