ECNETNews reports that Solana’s upcoming network upgrades could drastically affect validator earnings and increase the risk of centralization, according to Matthew Sigel, head of digital assets research at VanEck.
Sigel highlighted three crucial proposals—SIMD 096, SIMD 0123, and SIMD 0228—in a recent discussion. Aimed at enhancing Solana’s (SOL) economic framework, these proposals could potentially slash validator revenue by as much as 95%.
The SIMD 096 upgrade, implemented on February 12, redirected all priority fees to validators, replacing the previous model that burned half of these fees. Although staking rewards have risen, off-chain trading agreements between validators and traders face challenges as a result.
Currently under consideration, SIMD 0123 would further shift revenue away from node operators, as it would require validators to pay priority fees to stakers, thereby impacting their financial sustainability.
The most controversial proposal, SIMD 0228, is set for a vote on March 6. This modification to Solana’s inflation rate could see a drastic reduction from 4.7% to 0.93%, provided staking participation maintains at 63%. While this could lessen token dilution, it is expected to significantly lower staking rewards, placing smaller validators at a disadvantage.
Concerns are mounting among validators regarding the high operational costs of maintaining nodes. These costs include mandatory daily voting fees of 1.1 SOL (around $58,000 annually) and hardware expenses of roughly $6,000 each year. Presently, only 458 out of 1,323 Solana validators hold enough stake to be profitable, leading many smaller operators at risk of being excluded from the network.
Community members have suggested lowering voting fees to alleviate financial pressure on these validators. Despite the controversies surrounding inflation reduction, Sigel believes it will ultimately strengthen SOL’s position by easing sell pressure and supporting the token’s value over time.
Despite these challenges, Solana continues to show robust network activity. In February, the blockchain processed $109 billion in decentralized exchange volume, outpacing Ethereum for the fifth consecutive month, reaffirming its position in the crypto landscape.
However, if the current proposals are enacted, operating a node may become untenable for many small validators, potentially exacerbating centralization within the network.
