Solana is set to vote on overhauling the token creation process and its network’s reward system for stakers and validators. This will significantly impact Solana inflation, which is expected to go down dramatically. Still, not all are convinced, and the proposal has some prominent critics.
On March 6, SOL holders will vote on the Solana Improvement Document (SIMD) 0228, which overhauls network inflation. Instead of the current fixed schedule, inflation would be based on a market-based rate.
This rate would depend on the proportion of the Solana tokens staked. In particular, if more than 50% of the token is staked, the amount of SOL in circulation would decline. This is why many see this proposal as deflationary, since the current staking rate for SOL is 63%.
Critics Take Issue With Solana Inflation Proposal
Still, the proposal also has its critics, including Lily Liu, the President of the Solana Foundation. Her major concern was how traditional investors would react, as they tend to prefer stable yields. If these yields become more volatile, she fears these investors might look elsewhere.
She pointed out that Solana’s staked ETFs are the largest in the market, even surpassing Ethereum. She believes the reason for this is Solana’s 6% staking yield. The large staking rate on SOL is also likely connected to its high and predictable inflation rate.
“Widely fluctuating yields turned away institutional demand” for Cosmos, Liu mentioned in an X space. For that reason, she believes Solana should avoid repeating Cosmos’ mistake by developing a long-term strategy for emissions.
Some are also highlighting the risk that this may pose for smaller validators. Notably, running Solana nodes is very expensive, with smaller validators often struggling to stay profitable. Under the new proposal, these validators will get even fewer rewards, particularly during periods of low network activity.
This poses a major risk to Solana’s decentralization. Smaller validators will drop out of the network if they are not profitable. This may leave Solana with just a small number of large validators, exposing it to risks from centralization.
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