GuShiio.com What seems to be a blueprint for “smart distribution” has aroused fierce controversy in the community about the “inflation spiral” and interest game
Author: Frank, PANews
Recently, the Solana Governance Forum launched a proposal called SIMD-0228 to reduce SOL’s annual additional issuance by 80% by dynamically adjusting the inflation rate and guide funds from pledges to DeFi. However, this seemingly “smart issuance” blueprint has aroused fierce controversy in the community about the “inflation spiral” and the game of interests-when the pledge rate falls below the critical point, higher inflation may backfire market confidence. The income structure of the verifier and the distribution of benefits among ecological participants have become the invisible explosives of this token economy experiment.
The new proposal may reduce inflation by 80%, reducing SOL issuance by 22 million that year
Solana’s token SOL issuance mechanism has always adopted a fixed timetable mechanism, that is, the inflation rate declines from 8% at a declining rate of 15% per year over time until the target of 1.5% is reached. The current inflation rate is 4.694%. Under this inflation rate mechanism, the number of additional tokens issued this year is approximately 27.93 million tokens, and the pledge rate is approximately 64%.
In comparison, Ethereum’s inflation rate is currently around 0% and its pledge rate is around 30%. The inflation model of SOL tokens is obviously more unfavorable to token value preservation, and the excessive inflation rate also allows a large number of tokens to choose to be pledged to obtain a higher rate of return. Therefore, it is not conducive to the development of the DeFi ecosystem.
The proposal believes that currently in the Solana network, MEV income has become the main source of income for verifiers, and reducing the pledge yield will not have much revenue impact. “Simply put, it’s a ‘stupid distribution’. Given Solana’s booming economic activity, it makes sense to develop online monetary policy to achieve ‘smart issuance’.”
In the proposal, a dividing line was proposed, and the earliest assumption was 50%, that is, when the pledge rate exceeds 50%, the inflation rate will decrease, reducing the pledge income of the network. When the pledge rate is lower than 50%, the inflation rate is increased and incentives are expanded to encourage more funds to be pledged.
Subsequently, forum users questioned the lack of rigorous calculation basis for the 50% threshold and believed that the setting was too hasty. Subsequently, the sponsors provided a new algorithm curve, setting the pledge rate of 33% as a dividing line. When the pledge rate is higher than 33%, the annual inflation rate will be lower than the current inflation rate.
According to PANNews calculations, taking the current pledge rate of 64% as an example, according to the new token issuance curve, the annualized inflation rate will drop from 4.694% to 0.939%, a drop of about 80%.
If the proposal is finally passed and the current pledge rate is maintained, the number of additional issues issued by SOL that year will drop from 27.93 million to 5.59 million.
Proposal revised pledge rate and inflation rate
However, this statement in the proposal did not seem to reach consensus in the forum. A large number of comments believed that if the plan was passed, reality might not happen as ideal. For example, when the pledge rate falls, the rise in inflation will further reduce the market’s expectations for tokens, which may lead to further selling of unpledged tokens, causing greater uncertainty.
PANNews calculated that when the pledge rate is only 25%, inflation of 44.13 million coins will be generated, which is much higher than the current inflation rate.
If you really fall into this inflationary whirlpool, the result may be counterproductive. As the proposal states, the current source of income for verifiers is MEV income. This phenomenon is mainly due to the current active online transactions in Solana, and the demand of many MEME players for transaction speed and anti-sandwich attacks makes MEV’s revenue account for a relatively high proportion. If the overall online transaction volume declines in the future, the proportion of MEV revenue may not be able to maintain the main source of income for verifiers. At that time, if the double blow of inflation and falling prices was added, it might further dampen the enthusiasm of pledges, and instead lead to a reverse spiral of rising inflation and declining pledges.
The collective silence of the validators and giants is behind it is the interest game of large currency holders
The proposal was initiated by Vishal Kankani, an investor in Multicoin Capital, an early investor in Solana and led a $20 million Series A financing in 2019. And holds a large number of SOL tokens, and early investments choose to get SOL tokens instead of equity. From this background, Vishal Kankani represents a major currency holder in Solana and is sensitive to the impact of inflation on token market prices.
Interestingly, as of February 26, none of the large validators Helius, binance staking, Galaxy, etc. in the Solana network had commented on this proposal. The founder of Helius usually speaks frequently about the development of Solana’s ecosystem, but he only forwarded a related content about this proposal, which has a huge impact on the ecology, and commented that it is foolish to sell SOL tokens now.
In fact, once this proposal is passed, it may not be good news for verifiers like Helius, who return 100% of MEV revenue to pledgers. Because for now, Helius may rely more on the income of the pledge itself because he does not obtain income from the MEV.
Overall, this proposal represents the interest needs of major SOL currency holders, who prefer to reduce inflation to achieve value stability. In addition, from an ecological perspective, Solana Network’s current pledge yield is about 7.03%. Under the new plan, the same pledge yield will drop to 1.41%, and the yield will drop by nearly 80%. This is not a good thing for large verifier nodes that want to obtain risk-free benefits through pledge.
Of course, the proposal believes that it is the decline in pledge yields that will stimulate these validators to invest their tokens in more DeFi ecosystems, which can further enhance Solana DeFi’s ecological prosperity.
Solana’s token economy reform is essentially a rebalancing of power among large currency holders, validators and ecological builders. After the proposal is passed, the pledge yield of 7.03% may plummet to 1.41%, forcing verifiers to shift from relying on inflation incentives to deepening MEVs and transaction fees-this is both an opportunity and a gamble.
If DeFi can absorb billions of dollars in idle liquidity, Solana may usher in explosive innovations like Uniswap and Aave; but if the market sells due to declining yields, the additional issuance of 44.13 million shares under a pledge rate of 25%, may drag the network into a death spiral of “inflation-selling pressure-more inflation”.
At present, the silence of head verifiers such as Helius suggests the subtle tension in the interest chain-when the business model of returning 100% to MEV encounters a cut in basic income, the ecological “decentralized” narrative may face real torture. Multicoin Capital’s position as an early giant whale reveals the deep logic of this game: in the eyes of institutional investors, SOL’s value storage attributes have taken precedence over cybersecurity needs. In the coming months, as the March 7 vote approaches, Solana’s fate will no longer be dictated by code but by whether the community can find that dangerous balance between idealism and capitalist rationality.
