Solana Proposes 80% Inflation Reduction Amid Centralization Concerns

The Solana (SOL) community is gearing up for a significant vote on governance proposal SIMD-0228, which aims to reduce the network's annual inflation by as much as 80%. Scheduled for epoch 753, the vote will take place around March 6.

This proposal, developed by Tushar Jain and Vishal Kankani from Multicoin Capital, alongside Max Resnick, Anza's Lead Economist, has generated diverse opinions from community members.

SIMD-0228: A Bold Shift or a Risk to Solana’s Decentralization?

SIMD-0228 suggests replacing the existing fixed issuance schedule with “smart emissions,” a dynamic approach aimed at cutting inflation while maintaining network security. The emissions of SOL tokens will adjust based on staking participation rates.

In this proposal, if staking is high, the emissions decrease, and if participation dwindles, emissions increase.

“Considering Solana’s robust economic activity, evolving the network's monetary policy with 'smart emissions' is a logical move,” Jain noted on social media.

The proposed model sets a target staking rate of 50% with inflation capped at 1.5% and a lower threshold of 0%. This strategy is designed to reduce sell pressure, promote sustainability, and align rewards with the network's requirements.

The vision behind this proposal anticipates a scenario where SOL emissions could be eliminated as Maximal Extractable Value (MEV) revenues increase, ultimately making SOL a rarer and potentially more valuable asset.

Importantly, Solana co-founder Anatoly Yakovenko has expressed strong backing for SIMD-0228, stating,

“We have a chance to correct the mistakes of our youth.”

Mert Mumtaz, CEO of Helius Labs, also contributed to the discourse on SIMD-228, expressing his belief that the proposal would fortify the network.

“I think SIMD-228 should pass because I believe it makes the network stronger,” he tweeted.

Mumtaz further highlighted the value of public discourse on the matter, regardless of the proposal's outcome, emphasizing the focus on constructive solutions.

“SIMD-0228 is particularly significant as it could redefine Solana's tokenomics, influence staking incentives, and demonstrate how the ecosystem adapts to growth and market challenges,” stated analyst Marty Party.

Nonetheless, the proposal has ignited concerns from critics. Matthew Sigel, Head of Digital Assets Research at VanEck, warned about the potential repercussions of SIMD-0228, especially when viewed alongside two other significant proposals—SIMD-096 and SIMD-0123—concerning validator revenues and decentralization.

“Some estimates suggest validator earnings could diminish by up to 95%, making operations unsustainable for smaller validators,” he cautioned.

Sigel emphasized the existing financial burdens of running a Solana validator, including $58,000 per year in voting fees and $6,000 in hardware costs. Out of Solana's 1,323 validators, only 458 possess a sufficient stake (over 100,000 SOL) to maintain profitability.

“If smaller validators exit the network, we risk increased centralization around larger entities such as Coinbase and Binance,” Sigel noted.

These concerns resonate with many in the Solana community, who fear that SIMD-0228 may inadvertently favor larger stakeholders and threaten decentralization.

“This proposal could have drastic impacts on confidence in Solana when it is needed the most,” commented one concerned community member.

Despite these worries, Sigel acknowledged the potential for reduced inflation to enhance Solana's long-term sustainability by decreasing token dilution and sell pressure.