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Spot on!
The current curve does not allow an equilibrium between stakers and non stakers to be found below 1.5% yield.
If the yield the market demands for staking ETH vs holding ETH gets low enough, then there is simply no equilibrium. Because staking will always pay 1.5% over non staking. And once a majority of ETH is staked with an LST or a big centralized provider the risks of not staking with them are actually higher than staking with them. Because they have become de facto the canonical chain. Whatever happens they will be the dominant fork.
So you have just the perfect conditions for the chain to lose its CROPS properties.
Stake capping fixes that by ensuring there is a point where the yield of staking and not staking are equal. The point of setting the curve like that is not to reach it, staking will always carry a risk that the market will demand to be compensated for. Therefore the nominal yield will be positive. The point is to be able to reach that equilibrium and do so at a healthy stake range!

Such an equilibrium cannot form because stakers as you say are in a losing proposition. But holders are even more so, when more and more ETH is staked you get more and more diluted so you may as well stake your own. Particularly if slashing loses its bite because, anyway everyone is staking so what's there to lose. With the lowest friction way possible they will likely become LST holders.
This is how the stake growth spirals into very high stake ratios.
For that equilibrium to happen you need get the yields observed between staking and holding closer and closer. Such that you can ensure there is always a point at which the equilibrium can form.

Pretty much everything has been said about the issuance change in the last few days. Loved reading all the different opinions, some more nuanced some more opinionated. What I will write below is my view and is pretty much that, my view with my weight of priorities. Feel free to have different opinions and priorities.
I have already written about my general view about issuance 3 months ago (https://old.reddit.com/r/ethereum/comments/1t1gey5/daily_general_discussion_may_02_2026/ojifm1o/). I pretty much am of the same opinion as back then. Issuance is here to pay for a service, namely providing the Ethereum network with security. If issuance is used to loop LSTs around or bring tradfi into the space then they can take advantage of it, but only as long as the actors actually provide the security they are getting paid for. LST loopers can cost the space quite a bit as well, as the recent rsETH hack made pretty clear. The 3AC meltdown in 2022 also had a large depeg of LSTs due to looping if I remember correctly. So, not sure if this is part of the DEFI that should be protected by ETH holder dilution. They add validators, sure, but destabilise other parts of the ecosystem. In general, the stakers are getting paid by dillution of every ETH holder, mostly small amounts, but they are definitely getting diluted. One can think about it differently. If every year you have to take ~0.86% of your ETH holdings and send it to Coinbase (most probably the largest staker), Binance, Kraken, Bitmine etc. would you feel that your money is well spent for the security you are getting? And would you be willing to pay up to 1.5% every year in a most extreme, but unlikely outcome? In my view the amount of ETH staked is already above what Ethereum needs to be secure. Staking ratio was stable for some years, but it started growing again at the beginning of this year. For these reasons I am open to a change in issuance, but as said in my older post, it really depends on the proposed changes.
Now lets go to the specific proposal (EIP-8363) which tries to solve some of the issues. One goal of the proposal is to keep the ratio of ETH staked below 50%. The general issue this tackles is that if any system or economy starts to be dominated by a single mechanism or sector, this sector becomes 'too big to fail'. This adds a systemic risk and fully entrenches certain actors at the core of the protocol. That is not healthy, especially not for the system/economy as a whole. For this reason I think keeping the staking ratio below 50% is a great goal. With the proposed mechanisms, the EIP will achieve that, at least over longer time horizons. The current issuance curve cannot guarantee anything like that. So, I consider this a clear improvement over the status quo. The exact number of 50% is a bit arbitrary. In my simple view, one has to make sure it is clearly lower than 50% of the whole system, could be 45% or 40%. These are pretty much the same numbers in that context at least.
Issuance is planned to transition smoothly in the sense, that initially on the new curve, there is no APY change for stakers and within 18 months the lower curve is approached. I consider this a good time horizon and it prevents shocks in the ecosystem. That is necessary and reasonable. In a few years, if stake ratios increase with the current issuance curve, such a 'smooth' transition will get more punishing and also more complicated. Not impossible, but more complicated.
Now comes the most contentious part, the solo stakers. The current issuance curve slowly marginalized solo stakers and it will continue to do so. The proposed EIP-8363 does not change that outcome fundamentally, at least in my view. People make long economic arguments why the new issuance is better by leveling the playing field between solo stakers and professional ones. But as we have seen from the many solo staker opinions here and at other places, they pretty much only look at the APY to decide if they should stake or not. And with this proposal the APY can potentially go to 0. The intricate economics arguments brought up might not really be important to solo stakers, even though they should be. So, I do not think that this EIP can actually meaningfully diversify the staking landscape or even protect the solo stakers in any meaningful way. That is not surprising. Issuance is just one lever and it is pretty much impossible to find a good solution in such a complicated landscape by just having one lever to pull or push. Issuance is an important lever and it can solve some issues Ethereum might encounter in the future, but not all of them.
As written in the last post 3 months ago (linked above), a large issuance change for me is only acceptable in combination with additional safeguards to make sure that not only large entities grab the whole validator set. The most ideal way would be by being able to identify small stakers and give them a higher APY. Unfortunatly, there is no way to do this permissionlessly. The next best approach is to punish large stakers more if they make a mistake. This would improve the APY for solo stakers at least relative to the more professional ones and more importantly increase the cost for professional stakers as they will have to separate their staking setup into smaller subgroups so that only a smaller part is affected by a single configuration change. This would push the staking ratio equilibrium towards slightly higher APY. This punishing of larger stakers would also help to diversify setups within large operators and strengthen Ethereum resilience at least a bit. One such proposal is EIP-7716: anti-correlation attestation penalties, by Oisin Kyne. It simply increases the penalties for missing attestations if large parts of the networks are offline. Nowaday such a mechanism only kicks in when the network looses finality. With EIP-7716 this would already kick in at lower attestation failures and increase with more validators being offline. This would target mostly large entities. To be fair though, it would also hurt a much broader part of the ecosystem if one Ethereum client would have a bug and stop attesting. I would expect if something like EIP-7716 gets implemented more and more professional stakers would employ something like vero and vouch, which they should do already anyway and reduce these risks for everyone.
In my view we would need more than just one EIP to actually improve the staking landscape without sacrificing the diversity that is actually needed to keep the network resilient.
TL;DR: The proposed issuance change can achieve some of the goals it set out to achieve, but in my view it cannot fundamentally change the outcome for solo stakers. Not surprising as issuance is just one lever and there are limits what one can achieve with a single lever. Other EIPs, like EIP-7716, are in my view complementary and therefore necessary to improve the harsh outcomes the current and proposed issuance curve will have on solo stakers.