The SIMD-228 initiative, aimed at reducing the inflation rate of SOL by 80%, did not acquire enough votes for approval, primarily due to opposition from numerous smaller validators.
As reported by SIMD Vote Status, 61.39% of voters expressed support for the SIMD-228 governance vote, failing to reach the 66.67% threshold needed for endorsement. The voting concluded on March 13, with an unprecedented 74% turnout, marking it as the largest governance vote in the crypto space to date, both in terms of market value and participant numbers.
The voting patterns highlighted a divide among the network participants, despite the high level of engagement. Over 60% of smaller validators, holding 500,000 Solana (SOL) or fewer, voted against the proposal. Conversely, validators with larger stakes predominantly supported it, reflecting the differing impacts the proposal would have had on various groups.
Currently, Solana’s inflation mechanism balances the burning of transaction fees with the generation of staking rewards. During periods of heightened network activity, more fees are burned, helping to manage inflation effectively.
However, as transaction costs have decreased, fewer tokens are being removed from circulation. Meanwhile, with an inflation rate of 4.7%, staking rewards continue to introduce more SOL into the market. The intent behind SIMD-228 was to lower staking rewards, curbing the increase in SOL supply and potentially boosting its value.
If the proposal had been approved, inflation would have dropped below 1% at the current staking rate of 65%. Nevertheless, many smaller validators, who often charge minimal or no fees, could have struggled to sustain profitability. A significant exodus of these validators could have jeopardized Solana’s decentralization, raising concerns regarding its long-term stability.
Although SIMD-228 did not pass, another proposal, SIMD-123, was approved with nearly 75% in favor. This adjustment will allow validators to distribute rewards more transparently by enabling them to share a portion of their earnings with stakeholders through an on-chain mechanism. The recent voting outcomes indicate that network participants prioritize changes in validator incentives over the reduction of inflation.