Multicoin Capital has put forth a plan to transition the Solana network’s existing token release mechanism into a flexible-rate system, aiming to decrease the rate of inflation.
The plan, referred to as SIMD-0228, presents an approach inspired by market dynamics, with its value adjusting according to the level of engagement in staking, a figure derived by dividing the quantity of SOL tokens locked in staking by the overall count of tokens currently circulating.
If the involvement of stakers in the staking process falls short of the recommended threshold of 50%, an increase in token creation occurs as a motivational tactic, aiming to attract more participants to reinforce the network’s security.
If the participation rate goes beyond the set goal, the issuance of tokens will be limited. A ceiling will be imposed on the inflation rate to prevent excessive creation of new tokens. In simpler terms, if more people join than expected, we’ll cap the number of new tokens being made to maintain control over them.
The management of tokens and inflation continue to pose significant issues within decentralized digital currency systems, sparking continuous discussions about the best reward system designs.
Solana’s token emissions spark debate
In May 2024, Solana’s validators approved SIMD-0096, a proposal that did away with the half-burn mechanism associated with validator priority fees across the network. Now, all fees are directed entirely towards the block producers.
Opponents of the plan cautioned that removing the mechanism that burns 50% of fees could potentially lead to an increase in Solana’s inflation rate, as validators might be encouraged more by this change.
In essence, this inflation will advantage the validators, but Solana token (SOL) owners who opt not to delegate may encounter a decrease in the value of their holdings due to inflation eroding their assets.
Based on figures from StakingRewards, it’s estimated that around two-thirds (65%) of Solana’s total existing supply is currently being held in staking programs.
In December 2024, the Solana-based MEV block-construction platform, known as Jito, surpassed $100 million in rewards, offering an additional earnings source for validators.
Supporters of modifying Solana’s token emission suggest that rewards given to validators through Maximal Extractable Value (MEV) are sufficient incentives to keep the network secure, ensuring its stability and functionality.
Proponents argue that these incentive mechanisms via Multi-Transaction Execution (MEV) strategies lessen the requirement for fully distributing 100% of priority fees to Solana’s network validators, and they consider the potential downside of increasing SOL’s inflation rate not worth the risk.
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2025-01-16 23:57