Solana’s new improvement proposal, identified as SIMD-0411, aims to correct the rate at which native SOL token inflation decreases and double the annual “deflation” rate established in the protocol.
The initiative will be announced on November 25th and is open for community discussion. In summary, point to twice the annual disinflation rate Let SOL inflation reach its lowest expected rate sooner (from the current 15% to 30%).
Its authors are two developers associated with this ecosystem, known by the pseudonyms Lostin and 0xIchigo, who work for Helius, Solana’s infrastructure provider that provides APIs for building applications, on-chain data indexing services, and more.
Regarding changes in broadcast schedule
Solana currently uses a decreasing inflation model. Each year, the rate of new SOL issuance decreases. 15% reduction.
This rhythm is defined as the rate of expansion and indicates that the system is approximately 6.2 years to reach “terminal” inflation ratelocated at 1.5%.
SIMD-0411 In the proposal, Inflation doubles from 15% to 30% annually. The objective is to accelerate arrival at the final point without changing the minimum expansion predicted in the original design.
The following graph shows the difference between maintaining the current 15% annual disinflation rate (red line) and adopting the 30% pace proposed in SIMD-0411 (blue line).
In this image, both curves start at the current level of inflation, but quickly diverge. If disinflation were doubled, inflation would reach the final rate of 1.5% in about 3.1 years, whereas under the current scheme the same point would be reached after 6.2 years.
According to the document presented, the amendment does not introduce any new mechanisms or complex changes, but only changes the parameters that adjust the speed at which inflation decreases.
For the author, this is Maintain system predictability Allows you to clearly assess the impact of adjustments.
This new proposal joins a proposal that also proposed changes to SOL issuance but was not approved, as reported by CriptoNoticias.
Impact on holders and Solana staking
Solana inflation has a double effect for those who have SOL in their wallets.
On the other hand, we will distribute new coins as rewards to validators and stakers. On the other hand, as you increase the total supply of tokens, the percentage of the pie that comes with tokens gradually decreases. Corresponds to each holder who is not staking.
In reality, those who don’t delegate SOL will see their participation in the network become less valuable each year. Under the current proposal (-15% annual inflation rate), this dilution is modest. -30% change to that “loss of silence” Accelerates for passive holders Reach 1.5% of the final level faster.
The rate of decline in inflation will therefore impact both the overall economics of the token and the incentive structure of staking, the mechanism by which users delegate their SOL to validators.
Over a period of six years, the developers said that due to accelerating disinflation, Nearly 3.2% reduction in total SOL supply About the current schedule.
What is the impact on Solana validators?
The decline in staking rewards is also expected to accelerate, which could increase the relative cost of validators with low delegation volumes and impact profitability in certain cases.
The flip of the coin is the impact on validators, which reduces the risk of centralization for creators, but also for creators themselves. They calculated the damage to small validators.
The proposal calculates that as the decline in inflation rewards accelerates, nominal staking profits will also increase. The current rate of 6.41% will drop to 5.04% in the first year, 3.48% in the second year, and 2.42% in the third year. (A scenario with a staking participation rate of 66%, which is closest to the current scenario).
This means that small and medium-sized validators will need more delegated SOL just to cover fixed costs (servers, governance votes, etc.).
The authors estimate that in the first year, 10 of the current 845 validators will It will change from a profitable place to an unprofitable place.; 27 for the second, 47 for the third.
Although this number seems manageable, the cumulative effect is to put significant pressure on smaller operators, reduce the diversity of the validator pool, and potentially Prioritize concentration on the largest nodes Or better yet, capitalize it.