NEW: FREE Web3 Resume Cheat Sheet DOWNLOAD NOW

Solana proposes a variable emission model to curb inflation

In this post:

  • Multicoin Capital has proposed changing Solana’s token emission model to a variable-rate system.
  • If staking participation falls below 50%, token issuance will increase to encourage staking.
  • Around 65% of SOL’s circulating supply is staked.

Multicoin Capital has proposed SIMD-0228, which is expected to transition the Solana network’s current token emission model to a variable-rate system. The proposal aims to reduce inflation.

SIMD-0228 introduces a market-oriented solution that fluctuates based on the staking participation rate, which is calculated by dividing the amount of staked SOL.

Assuming the staking participation rate falls below the recommended target of 50%, new token issuance will increase to reward stakers and validators and secure the network.

In reverse, if the participation rate exceeds the target rate, token issuance is restricted, and the inflationary rate is cap-capped to limit the rate at which new tokens are minted.

Tokenomics and inflation continue to challenge distributed cryptocurrency networks, sparking ongoing debates about the best incentive models.

Solana validators approve proposal to redirect priority fees

Mid-last year, Solana validators voted to approve another proposal, SIMD-0096, which removed the 50% burn mechanism for validator priority fees over the network and allowed 100% of the fees to be allocated to block producers.

This proposal aimed to improve incentives around how validators receive priority fees, helping with network security. SIMD-0096 was expected to eliminate possible side deals between block producers and transaction submitters, improving incentives within the validator system.

See also  VanEck predicts Solana will reach $520 by the end of the year

The original proposal stated.

This ensures that validators are appropriately incentivized to prioritize network security and efficiency, rather than being incentivized to engage in potentially detrimental side deals.

SIMD-0096 proposal

Critics of the proposal warned that removing the protocol’s 50% fee-burning mechanism to incentivize validators would raise SOL’s inflation rate. This inflation would benefit validators; however, SOL holders who choose not to stake could face the negative effects of inflation eroding their holdings.

Though the proposal received a 77% approval rate, SIMD-0096 has not yet been implemented on the Solana mainnet at the time of this writing.

65% of SOL is staked, with Jito’s MEV rewards exceeding $100 million

Data from StakingRewards shows that approximately 65% of SOL’s circulating supply is currently staked.

Jito — a Solana-based maximal extractable value (MEV) block-building solution — surpassed $100 million in tips in December 2024, offering an additional income stream for validators.

The advocates of adjusting Solana’s token emissions argue that validator rewards gained through maximal extractable value are sufficient incentives for validators to secure the network.

According to proponents, these MEV-based incentives reduce the necessity of allocating 100% of priority fees to network validators and are considered preferable to the risk of increasing SOL’s inflation rate.

See also  SEC scales back crypto enforcement as Trump administration reverses regulatory push

Cryptopolitan Academy: Are You Making These Web3 Resume Mistakes? - Find Out Here

Share link:

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

Most read

Loading Most Read articles...

Stay on top of crypto news, get daily updates in your inbox

Editor's choice

Loading Editor's Choice articles...
Subscribe to CryptoPolitan