Over a Third of Validators Back SIMD-228 Proposal for Reducing SOL Inflation by 80%

The SIMD-228 proposal, which intends to decrease SOL inflation by 80%, has obtained 35.7% approval from Solana validators as of now.

Information from Dune Analytics reveals that out of the 1327 active Solana (SOL) validators, 701 have cast their votes. Among them, 1.2% chose to abstain, 17.2% opposed the proposition, and 37.5% endorsed it. If ratified, SIMD-228 would significantly decrease staking rewards, thereby reducing the number of new SOL tokens entering circulation.

There are concerns regarding the impact of this proposal on the network's decentralization, despite its potential to alleviate selling pressure. Solana's inflation models currently rely on a balance between burning transaction fees and staking rewards.

During periods of heavy network traffic, more fees are burned, which helps counteract inflation. However, as transaction costs have decreased, fewer tokens are being removed from circulation. Staking incentives continue to add fresh SOL supply at a 6.8% inflation rate, which could potentially lower its price.

If implemented, SIMD-228 would decrease staking rewards, reducing supply and potentially increasing the value of SOL. However, smaller validators with low or no commission rates might find it challenging to maintain profitability and may even be forced to shut down.

The departure of a significant number of validators could weaken the decentralization of the network, raising concerns about its long-term sustainability. Prior to considering SIMD-228, Solana developers examined several alternatives, including those with fixed-rate adjustments.

Meanwhile, Solana's market performance has been disappointing in recent weeks. As of Mar. 13, SOL is trading at $126, a more than 50% decrease from its peak of $293 in January. According to DefiLlama data, decentralized finance activity has decreased, as indicated by the network's total value locked falling from $12 billion in January to $7 billion.

Monthly fees have also dropped significantly due to low network usage, especially as memecoin trading cools off, from $250 million in January to $89 million in February.

If SIMD-228 is approved, supply pressure may be reduced, but its success hinges on the increasing demand from the network. Simply decreasing inflation may not be sufficient to drive a robust recovery without more users and activity.