The SIMD-228 proposal, which seeks to reduce SOL inflation by 80%, has garnered 35.7% approval from Solana validators thus far.
Data from Dune Analytics reveals that 701 of the 1,327 active validators in the Solana (SOL) network have cast their votes. Among these, 1.2% chose to abstain, 17.2% opposed the proposal, while 37.5% supported it. Should SIMD-228 receive approval, it would significantly lower staking rewards, thereby decreasing the influx of new SOL tokens into circulation.
Despite potential reductions in selling pressure, there are concerns regarding the impact on the network’s decentralization. Currently, Solana’s inflation model aims to balance transaction fee burning with staking rewards.
During high network activity, transaction fees are burned at a higher rate, helping to mitigate inflation. However, with transaction costs declining, fewer tokens are being extracted from circulation. The current staking incentives contribute to a fresh SOL supply at an inflation rate of 6.8%, which could negatively affect its price.
By reducing staking rewards, SIMD-228 would cut supply and might enhance the value of SOL. However, smaller validators with minimal or no commission fees may struggle to remain profitable and could risk being driven out of the market.
A significant exit of validators could undermine the network’s decentralization, raising concerns about its long-term sustainability. Prior to proposing SIMD-228, Solana developers evaluated several alternatives, including those with fixed-rate adjustments.
Meanwhile, Solana has experienced a downturn in market performance over the past few weeks. As of March 13, SOL is trading at $126, more than 50% lower than its peak of $293 in January. According to DefiLlama’s data, there has been a decline in decentralized finance activity, illustrated by a drop in the network’s total value locked from $12 billion in January to $7 billion.
Furthermore, due to decreased network usage, particularly as memecoin trading has waned, monthly fees have plummeted from $250 million in January to $89 million in February.
While approving SIMD-228 might alleviate supply pressure, its effectiveness hinges on increasing network demand. Simply reducing inflation may not be sufficient for a robust recovery without a rise in users and activity.