I would like to offer a note on the key propositions in this post:
Understanding the equilibrium
The nominal yield offered in Ethereum is the same for all stakers, and the equilibrium must be modeled jointly. The joint supply curve of all groups will intersect the demand curve (the protocol yield) to form the equilibrium. This supply curve will naturally tend to have a shifting composition of solo stakers and delegating stakers at different points, leading us to prefer certain equilibria over others.
If we interpret your setup as a supply–demand model, it corresponds to a perfectly elastic supply for each type at break-even yield. In other words, each supply curve is a horizontal line when nominal yield is on the y-axis. In such a model, the aggregate supply curve will represent only one staking type: the type with the lowest reservation yield (i.e., the type that can break even under the lowest nominal yield). It is then only this type that stakes under any well-formed (downward-sloping) reward curve. To see this, consider that the nominal yield is equal for all types under equilibrium. With horizontal supply curves, the type with the lowest costs (lowest reservation yield) captures the entire market.
As I understand it, the post suggests that the “gap” in the plots between real yield zero-crossings for the stake rates is relevant for determining the composition of the staking set. If solo stakers have a real yield zero-crossing at 50M ETH and delegating stakers at 100M ETH, then this is worse for decentralization than if all stakers have a zero-crossing at 50M ETH. However, the “gap” in the plots is not particularly relevant under a joint equilibrium model. Since all stakers compete for the same yield, the market clears at a single nominal yield. We can easily construct a model where there is no “gap” at all, simply by having a vertical demand curve. The joint equilibrium outcome is the same, only the type with the lowest reservation yield participates. In other words, the size of the “gap” between individually modeled staking types—as observed in a graph along the x-axis—does not necessarily reveal anything about the equilibrium stake composition.
Further note that while the “real yield zero-crossings" highlighted in the plots are interesting as a marker of when stakers stop gaining share of supply relative to holders, they are not the same as the economic indifference point that determines how much stake is supplied. For the actual staking decision, what matters is the nominal return (after costs) relative to the outside option (which may or may not be to just hold ETH). Thus, not compensating for inflation (or deflation) when forming the curves for the different types would actually produce more meaningful zero-crossings. In your current framework, these would be the points where the staker’s and holder’s “real yield” curves intersect, rather than where the staker curve crosses zero on its own.
The arguments for an issuance reduction
In practice, the supply curves among Ethereum’s stakers are not horizontal—they are upward-sloping (with some reservations regarding the macro-implication of a dominant LST). There is not one reservation yield for each staking type, there is a distribution of reservation yields within each type, which leads to these upward-sloping supply curves. Some solo stakers are happy to stake at 1%, some will not stake below 2%, etc. This means that at each equilibrium, there will be some specific proportion of solo stakers and delegating stakers.
I illustrate how the equilibrium forms from these distributions of reservation yields in the Ethereum issuance reduction FAQ, as well as in my talk at Devcon. But as mentioned in that talk, a real probabilistic model of this is desirable. While the “gap methodology” offers an intuitive visual heuristic, it does not substitute for a proper equilibrium analysis that relies on distributions of reservation yields to form the supply curve(s).
Further note that since the aggregate supply curve is upward sloping, we cannot assert that a more restrictive reward curve always is better for stakers, with reference to the real staking yield (“effective yield” in the post) they derive after accounting for dilution. This depends on the slope of the supply curve as illustrated in Figure 28 here using an isoproportion map. The reward curve that produces the highest real staking yield for stakers is the one that intersects the supply curve at the highest elevation in the isoproportion map.
However, this is unlikely to be the most profitable reward curve for stakers even if they derive the highest real staking yield. The real “real yield” must also account for appreciation in the ETH token itself. Given that lower issuance can increase welfare among token holders and improve the macro perspective, a reduced issuance can be profitable even if the reward curve does not intersect the absolute highest elevation in the isoproportion map.
These are some of the considerations we must keep in mind when zeroing in on an updated issuance policy. I like your idea of using real-yield curves to highlight certain properties and the shapes of the reward curves are rather reasonable, but we should be cautious about over-interpreting the x-axis “gap” without an explicit joint equilibrium framework using, e.g., reservation-yield distributions.