The SIMD-228 proposal aiming to reduce Solana’s (SOL) inflation by 80% has garnered 35.7% support from Solana validators to date.
As reported from recent analytics, 701 out of 1,327 active Solana validators have cast their votes regarding the proposal. A mere 1.2% abstained, while 17.2% opposed it, and 37.5% supported it. If approved, SIMD-228 would significantly decrease staking rewards, thereby limiting the influx of new SOL tokens into circulation.
Despite the potential to ease selling pressure, concerns have emerged about how this proposal might impact the network’s decentralization. Currently, the inflation model for Solana aims to balance transaction fee burning with staking rewards.
During periods of high network activity, more fees are burned, which counteracts inflation. However, with a decline in transaction costs, fewer tokens are being removed from circulation. Staking incentives continue to add fresh SOL supply at a 6.8% inflation rate, which may exert downward pressure on its price.
Should SIMD-228 pass, it would decrease staking rewards, thereby reducing supply and potentially increasing SOL’s value. However, smaller validators with low or no commission rates could encounter profitability challenges and may be pushed out of the market.
If a significant number of validators exit, this could undermine the decentralization of the network, raising concerns about its long-term sustainability. In exploring SIMD-228, Solana developers have evaluated various alternatives, including fixed-rate adjustment options.
In the meantime, Solana’s market performance has faced challenges recently. As of March 13, SOL is trading at $126, reflecting a drop of over 50% from its peak of $293 in January. Data shows that decentralized finance activity has also declined, with the network’s total value locked decreasing from $12 billion in January to $7 billion.
Low network usage, particularly with reduced memecoin trading, has resulted in a significant drop in monthly fees, plummeting from $250 million in January to $89 million in February.
While the approval of SIMD-228 could reduce supply pressure, its effectiveness hinges on the growth of network demand. Simply reducing inflation may not suffice to facilitate a robust recovery without increased user activity and participation.
