The SIMD-228 proposal, which would drastically reduce Solana's inflation rate by 80%, has gained support from over a third of network validators according to recent data.
Dune Analytics shows that out of 1,327 active Solana validators, 701 have cast their votes on the proposal. Currently, 37.5% favor the change, 17.2% oppose it, and 1.2% have abstained from voting.
If approved, SIMD-228 would significantly cut staking rewards, reducing the amount of new SOL tokens entering circulation. While this could potentially reduce selling pressure on the token, concerns have been raised about how such a change might impact network decentralization.
Solana's current inflation model balances transaction fee burning with staking rewards. During periods of high network activity, more fees are burned, helping to counteract inflation. However, as transaction costs have decreased, fewer tokens are being removed from circulation. Meanwhile, staking incentives continue to add fresh SOL supply at a 6.8% inflation rate, which may be putting downward pressure on its price.
The proposed change would lower staking rewards to reduce supply, potentially increasing SOL's value. However, smaller validators with low or no commission rates might struggle to remain profitable and could be forced to shut down operations. If enough validators exit the network, this could weaken Solana's decentralization, raising questions about its long-term sustainability.
Solana developers considered various options before proposing SIMD-228, including alternatives with fixed-rate adjustments.
Meanwhile, Solana has been facing market challenges in recent weeks. As of March 13, SOL is trading at $126, down more than 50% from its January peak of $293. DeFi activity on the network has also declined, with total value locked falling from $12 billion in January to $7 billion currently, according to DefiLlama data.
Monthly fees have dropped significantly from $250 million in January to $89 million in February, largely due to decreased network usage as memecoin trading activity has cooled off.
While approving SIMD-228 might reduce supply pressure, its success ultimately depends on growing network demand. In the absence of increased user activity, reducing inflation alone may not be sufficient to drive a strong recovery.
What's your opinion on this inflation reduction proposal? Could it help SOL recover, or might it harm network security?
Share your thoughts on this significant potential change to Solana's economics below!
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