Solana’s SIMD-228 Proposal Gains 35.7% Validator Support to Slash SOL Inflation by 80%

The SIMD-228 proposal, designed to significantly reduce the inflation rate of Solana’s SOL tokens by 80%, has garnered backing from 37.5% of Solana validators thus far.

As of recent reports from Dune Analytics, 701 out of the 1,329 active validators on the Solana network have cast their votes on the proposal. While 1.2% of the participants have opted to abstain and 17.2% have opposed the measure, a notable 37.5% have expressed support. Approval of SIMD-228 would lead to a considerable cut in staking rewards, thus curtailing the influx of new SOL tokens into circulation.

Concerns surrounding the potential implications of this proposal on the network’s decentralization are significant. While the reduction in inflation may alleviate some selling pressure on the token, the overall health of the network’s decentralization remains a potential casualty of such a measure. Currently, Solana’s inflation models aim to strike a balance between burning transaction fees and offering staking rewards to participants.

During periods of heightened network activity, higher fees are burnt, providing a counterbalance to inflation. However, as transaction costs have tumbled, the rate at which tokens are removed from circulation has also declined. The existing staking mechanisms contribute a steady supply of SOL at an inflation rate of approximately 6.9%, raising concerns about potential downward pressure on the token’s market value.

The SIMD-228 initiative, should it pass, would thus lower staking rewards, potentially decreasing the overall supply of SOL and boosting its market value. However, smaller validators—particularly those operating with minimal or no commission rates—might struggle to remain economically viable, potentially leading to their exit from the network.

The departure of a significant number of validators could jeopardize the decentralization of Solana, invoking questions about the long-term resilience of the network. Prior to introducing SIMD-228, Solana’s development team evaluated multiple alternatives, including strategies that would incorporate fixed-rate adjustments to inflation.

Amidst these discussions, the market performance of Solana has been troubling in recent weeks. As of March 13, SOL is trading at approximately $126, which represents a stark decline of over 50% from its January peak of $293. According to data from DefiLlama, activity within decentralized finance (DeFi) on Solana has also dwindled, evidenced by a decrease in total value locked from around $13 billion in January to a mere $8 billion currently.

Furthermore, the network’s monthly fee generation has faced a significant downturn. As trading of memecoins subside, monthly fees plunged from $250 million in January to around $89 million in February, highlighting a disturbing trend of stagnation in network usage.

While approval of the SIMD-228 proposal could temporarily ease supply pressures for SOL, its overall efficacy hinges on the resurgence of network demand. Simply implementing measures to reduce inflation might not suffice to initiate a robust recovery absent an uptick in users and activity on the platform.