Solana mulls 50% priority fee burn cut: Here’s what it means

Solana proposes to reward validators full priority fees by scrapping 50% burn.
Community divided over the proposal as priority fee-induced inflation and validator rewards interests compete.

As a researcher with experience in the Solana ecosystem, I find myself on the fence regarding the proposed change to reward validators fully with priority fees instead of the current 50% burn model. The community’s reaction is divided, with validator incentives and potential inflation competing for attention.

The Solana [SOL] community continues to be split over the suggestion to eliminate the 50% priority fee burn and solely compensate validators instead.

As a crypto investor, I would rephrase it like this: “SIMD-0096 proposal suggests that validators be fully compensated with priority fees instead of the present arrangement where they receive half as rewards and burn the other half.”

As a Solana network analyst, I’d explain that for those new to the system, priority fees are payments made by users with time-sensitive transactions to ensure their transactions are processed promptly. By doing so, they help prevent network congestion. In turn, validators can prioritize these transactions and process them more quickly, thus maintaining network efficiency.

The problem with Solana’s 50% priority fee burn removal

Significantly, the present approach of giving half the rewards and burning the other half in Solana (SOL) earnings from priority fees is considered deflationary.

If the proposition is approved, validators will be entitled to collect 100% of the priority fees without any being burned, resulting in increased Solana supply and potential price inflation. An adversary of this proposition raised concerns.

‘Solana’s inflation is about to increase as validators vote to pay themselves more. More traffic on SOL network? More tokens from thin air go to validators that will dump on you.’

a new fee distribution mechanism.

I firmly recommend postponing the activation of SIMD-0096 until a mechanism for distributing block fees has been implemented.

As a researcher studying the developments in the Solana blockchain, I came across Anatoly Yakavenko’s observation regarding a proposed mechanism. He mentioned that this mechanism might require between six months up to a year before it becomes functional.

So why the proposal, and why now? You might ask.

It seems that under the present 50-50 setup, other validators are able to participate in clandestine transactions or agreements outside of the main chain.

As a financial analyst examining Solana’s transaction fees, according to Anza, a Solana core developer, there are instances where users incur costs exceeding the minimum fee of 50%. This issue can be addressed by implementing the proposed solution suggested by Anza.

Another user, an engineer at Firedancer – a new Solana client software company – expressed agreement with the proposition yet cautioned that it may not completely resolve “side deals.”

Despite the proposition, Stakewiz continued to voice their objection due to insufficient data-backed rationale.

As a crypto investor, I support the idea of eliminating priority fee burn in general. However, I’m not in favor of this specific proposal due to the absence of solid data-backed rationale and its inability to tackle the issue of increasing priority fees.

Validators are anticipated to derive greater advantages from this proposed move, while it’s unclear how the price of Solana (SOL) will be impacted following the proposal’s decision.

2024-05-24 14:15

The problem with Solana’s 50% priority fee burn removal

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