On March 5th, COINOTAG reported insights from Cointelegraph regarding VanEck, an asset management firm, which highlighted the significance of the upcoming protocol upgrade in Solana. This upgrade is perceived as pivotal for the network’s long-term viability, but it raises concerns about the potential reduction in validator rewards. Within this month, validators will cast their votes on two specific blockchain protocol upgrade proposals (SIMD), which aim to maintain adequate rewards for stakers while recalibrating the inflation rate of SOL. Matthew Sigel, Director of Digital Assets Research at VanEck, indicated that the proposals have ignited notable debate, with the possibility of validator rewards plummeting by as much as 95%, thereby jeopardizing smaller operators.
The first proposal, SIMD 0123, seeks to implement an on-chain strategy that channels priority fees generated from transactions to validator stakers. This entails that traders can opt to pay additional fees for expedited transaction processing, a segment that currently contributes to 40% of the overall network revenue, which stakers aren’t required to share. The vote for this proposal is slated for March 6th and aims to boost staking rewards while discouraging off-chain settlements.
The second initiative, SIMD 0228, is noted as the “most impactful” due to its objective of adjusting the inflation rate of SOL in direct correlation to the percentage of staked tokens. This adjustment could mitigate dilution and lessen the selling pressure from stakers. As reported by Coin Metrics, Solana’s inflation rate in February was approximately 4%, reduced from an initial 8%, yet remains significantly above the targeted terminal rate of 1.5%, with a current annual decrease of 15%.