Analysis of SIMD-0228: Solana’s Monetary Policy Transformation and Multi-Party Game

This article provides a detailed analysis of how Proposal SIMD-0228 changed Solana’s inflation mechanism.

Author:@lvxuan147

Important points 丨 Too long to read 丨TL;DR

• Essence of the proposal: SIMD-0228 significantly reduces Solana’s inflation rate (from 4.779% to 0.87%), reduces token issuance, ensures network security, and frees up capital for DeFi.

• Core mechanism: The current inflation is falling steadily (8% minus 15% year by year, target 1.5%), and it is criticized for stupid issuance; the new model is market-driven, with high pledge rate (65%) and low inflation, low pledge rate (33.3%) and high inflation, 33.3% is the balance point.

• Position differentiation: large investors and non-pledgers support (less dilution and stable prices); small and medium-sized verifiers and pledgers oppose (earnings fall); large verifiers support (strong MEV). Big fish are popular, but small fish are struggling. It is like supermarkets cutting prices, big stores are worry-free, and small stores are closing.

• Verifier impact: The pledge rate may drop from 65.7% to 45.55%, 34% of verifiers (4,055) may withdraw, income will shift from inflation to MEV, and DeFi lock-up SOL will increase by 510%, such as factory layoffs, efficient ones will stay, and inefficient ones will leave.

• Ecological impact: Annual issuance is 382 million yuan, of which 25%(955 million yuan) is lost. SIMD-0228 proposes to plug leaking barrels and retain 783 million yuan annually to promote DeFi development, optimize resources, and reduce dilution.

• MEV and inflation: Verifier income shifts from fixed salary to tips (MEV). In 2024, MEV will reach 675 million, accounting for 14% of issuance. The return is high but unstable.

• Security risks: Low pledge rates, inflation, price rises and falls, and the verifier recedes, forming a vicious cycle;MEV relies on centralized risks, and its stability under extreme conditions is yet to be tested, such as economic recessions, which are preventable but not complete.

• Significance of the proposal: SIMD-0228 is not only a technological change, but also represents Solana’s shift from excessive payments to ensure security to finding the minimum necessary payments, from artificial rules to market balance, a bit like a planned economy to a market economy. Solana has the potential to move towards a more mature, more market-oriented economic model

• Action suggestions: It depends on whether the proposal can be passed. If it is passed, the currency holder needs to adjust the pledge strategy, the verifier needs to optimize the MEV, and the developer can seize new opportunities for DeFi.

Explanation of key terms

Before analyzing in depth, let’s understand a few core concepts:

• Pledge rate (s): The percentage of SOL locked out for network verification to the total supply, currently approximately 65.7%

• Inflation rate (i): The percentage of newly issued SOL as a percentage of total supply each year, currently approximately 4.779%

• Verifier: The node operator of the Solana network, responsible for verifying transactions and maintaining network security

• MEV (Maximum Extractable Value): The additional revenue the verifier receives from transaction ranking, similar to a transaction tip”

• Leaky bucket effect: refers to the phenomenon that new value created by inflation flows out of the ecosystem through taxation and other channels

Xiaobai Friendly Guide: This article provides a detailed analysis of how Proposal SIMD-0228 changes Solana’s inflation mechanism. Even if you are not familiar with the concepts of blockchain and cryptocurrency, you can pay attention to the “Explanation of Little White” part of the article. I will explain obscure and complex concepts in simple language. The following is the formal discussion.

0. Introduction: Five key questions explain the turning point of Solana’s inflation policy

Solana is standing at a historic turning point when the SIMD-228 proposal could revolutionize its inflation mechanism, moving away from a fixed timetable to a market-driven dynamic model. This is not only a change at the technical level, but also a profound reshaping of the economic structure of the entire Solana ecosystem.

The core question that the SIMD-228 proposal attempts to address is: How to minimize unnecessary token issuance while ensuring network security?

After understanding the core issues, let’s have a deeper understanding of the background. The following five questions I have sorted out will help understand why this proposal has sparked such extensive discussions:

• What are the deep games behind the proposal? How to redistribute the benefit cake?

• What is the impact on the verifier economy? How will it be reshaped?

• Will a decrease in pledge rates threaten network security? Is there a critical point?

• How will the relationship between MEV and inflation change? What impact will changes in revenue sources have?

• “How did the leaky bucket effect quietly erode the Solana ecosystem? Hundreds of millions of dollars are being lost every year?

• Can low pledge rates cause systemic risks? Can negative feedback loops threaten network stability?

💡Xiaobai explained: Imagine Solana is like a country that is considering changing the way it prints money.”” Currently, the country prints new money every year on a fixed schedule; the new proposal suggests that how much new money to print is determined based on how many people deposit money in the bank (pledge). If many people save money, print less; if few people save money, print more. This change affects everyone: banks (verifiers), depositors (pledgers), consumers (app users), ordinary currency holders

1. Deep understanding of SIMD-0228: author, timing, core of change and interests

Proposal author: heavyweight

Proposal SIMD-0228 was proposed by three influential figures in the Solana ecosystem:

• Co-founder of Tushar Jain Multicoin Capital, one of Solana’s earliest and largest institutional investors. Tushar has publicly expressed his long-term optimism about Solana many times and discussed blockchain monetary policy on many occasions.

• Investment Partner of Vishal Kankani Multicoin Capital, focusing on cryptocurrency economics and market structure research. He has published multiple analytical articles on Solana ecosystems and value capture mechanisms.

• Engineer Max Resnick Anza, a member of Solana’s core development team, has a deep technical background and an in-depth understanding of the Solana code base. He provided expertise in technical implementation in the proposal.

Notably, the authors are from Multicoin Capital, a venture capital firm that is one of the largest institutional investors in the Solana ecosystem and holds a large number of SOL tokens. This background is very important for understanding some of the interests of the proposal.

Xiao Xiaobai explained: The author of the proposal is not an ordinary person, but a major player in the Solana world. Two are executives from large investment funds who hold a lot of SOLs; the other is a core technician at Solana. Understanding who is driving this change is important because it can affect the way they design solutions.

Proposal timing: January 2025

• MEV revenue growth Solana’s MEV revenue in Q4 2024 reached a staggering $430 million, more than 10 times that of Q1. This data provides strong support for reducing inflation (Solana Floor), indicating that the verifier has sufficient alternative sources of income.

• High pledge rate The current pledge rate of 65.7% is at a historical high, creating favorable conditions for reducing inflation.

• Ecosystem maturity The Solana DeFi ecosystem is mature enough to absorb and utilize the capital freed up from pledges.

• Market Environment In the broader cryptocurrency market, monetary policy and inflation control have become hot topics.

Core of change: Current status and proposal goals (idealization)

The following table compares in detail the current Solana network state (2025 01 18) with the expected goals after the implementation of the SIMD-0228 proposal:

These data clearly show the core goals of SIMD-0228:

• Significantly reduce inflation

• Reduce unnecessary token issuance

• At the same time, maintain adequate network security and free up more capital into the DeFi ecosystem.

Xiao Xiaobai explained: Compared with the Solana inflation model, this table tells us how much the change has been. Simply put: Solana’s current annual money printing rate is 4.78%, but the new proposal wants to reduce it to around 0.9%, a reduction of 82%! This means that the basic salary of validators (network maintainers) will be significantly reduced, but they can make up for it through other income (MEV, which can be understood as a tip for sorting transactions). At the same time, there may be about 4,055 small validators who may leave the network due to lack of income.

Original formula and design ideas

The core of the SIMD-0228 proposal is the introduction of a dynamic inflation formula based on pledge rates:

This formula may seem complex, but its design is very subtle:

• Using a square-root function rather than a linear relationship, it is more moderate to reduce inflation at high pledge rates, and more aggressive to increase inflation at low pledge rates.

• A critical point was designed: when the pledge rate was 33.3%, the inflation rate was equal to the current fixed rate

• Coefficient c (approximately equal to) ensures a smooth transition of the formula between different pledge rate ranges

Xiao Xiaobai explained: Don’t worry about this complicated formula! The following chart gives you a simple understanding. The key is to understand its role: When many people pledge SOL (more than 65%), the money printing speed will be greatly reduced; when the number of people pledge decreases (less than 50%), the money printing speed will increase moderately; if the pledge rate falls below 33.3%, the money printing speed will increase significantly to attract more people to pledge. This is like an automatic regulator, keeping the network balanced.

SIMD-0228 simulates different scenarios: high pledge rate, medium pledge rate, and low pledge rate. The formula design reflects that the inflation rate is automatically adjusted through market mechanisms to make it just meet network security needs, no more or less.

Proposal interest claims

By carefully analyzing the content of the proposal, author’s background and timing of the proposal, we can identify the following main interest claims:

• Reducing positions diluted Multicoin Capital holds a large amount of SOL, reducing inflation and reducing annual dilution by 4.56%.

• Supporting SOL prices reduces new supply and could push prices higher (Cryptoww.gushiio.coms).

• The proposal to release capital into DeFi has repeatedly emphasized the inhibition of high pledge rates on DeFi’s development, promoting capital flow into DeFi, and benefiting projects invested by Multicoin.

• The proposal to shape a market-driven narrative emphasizes that the market is the world’s best price discovery mechanism and strengthens Solana ‘s efficient network positioning.

• Verifier Ecological Optimization Max Resnick focuses on long-term sustainability and reduces inflation dependence.

Xiao Xiaobai explained: There are multiple motives behind the proposal. Imagine you own 10% of a company. If the company issues 5% of new shares to employees every year and you don’t get these new shares, your ownership will be diluted a few years later. Large investor Multicoin wants to reduce this dilution, but also wants SOL prices to rise (reducing supply growth is usually good for prices). In addition, they also want more SOL to flow into DeFi applications because they are also investing in these applications.

It is worth noting that in the cycle shown in the figure below, although the proposal may be in the interests of large investors, its design does also take into account the healthy development of the entire ecosystem. Details such as the safety threshold design and the 50-round smooth transition period in the formula show that the author is trying to find a balance between multiple interests.

Proposal timing

The choice of submitting the proposal in January 2025 also has specific strategic significance:

• MEV revenue growth In 2024, MEV revenue in Q4 reached a staggering US$430M, more than 10 times that in Q1. This data provides strong support for reducing inflation, indicating that the verifier has sufficient alternative sources of income.

• High pledge rate The current pledge rate of 65.7% is at a historical high, creating favorable conditions for reducing inflation.

• Ecosystem maturity The Solana DeFi ecosystem is mature enough to absorb and utilize the capital freed up from pledges.

• Market Environment In the broader cryptocurrency market, monetary policy and inflation control have become hot topics, and the proposal echoes broader market trends.

Yan Xiaobai explained: The timing of the proposal is also very particular. Just as they chose to implement reforms during a good economy, the sponsors chose a moment when the time was right: the additional revenue (MEV) earned by validators from transactions increased significantly; the current pledge rate was high (65.7%); and Solana’s application ecosystem was mature. All of these factors make now a good time to slow down the speed of printing money.

2. From fixed time to market-driven: more pledges, less money printing

Currently, Solana uses an inflation mechanism with a fixed downward pattern: starting from the initial 8% and reducing it by 15% every year, it has now dropped to about 4.78%, and will eventually reach the bottom line of 1.5%. This mechanism is called dumb emissions by its sponsors because it does not consider the actual situation of the network.

The new model proposed by SIMD-0228 introduces market factors to dynamically correlate inflation rates with pledge rates. This design is designed to let the market determine inflation rather than following a predetermined fixed timetable. When the pledge rate is 33.3%, the inflation rate will equal the current fixed rate, forming a key balance point.

The key characteristics of this formula are: the higher the pledge rate, the lower the inflation rate; the lower the pledge rate, the higher the inflation rate. This design allows the network to automatically adjust the inflation rate to maintain an appropriate level of pledge participation and ensure network security while avoiding over-issuance.

Xiao Xiaobai explained: Currently, Solana’s money-printing plan is fixed: reducing it by 15% every year until it reaches 1.5%. It’s like a country printing money according to a fixed schedule, regardless of its economic situation. The new proposal is more like a modern central bank: dynamically adjusting the money supply based on economic conditions (pledge rates). If the economy is active (high pledge rate), reduce money printing; if the economy is depressed (low pledge rate), increase money printing to stimulate activity.

3. How will Solana’s new monetary policy be reshaped?

3.1 Large investors/institutional investors

• Core benefits: Reduce dilution, support prices, and optimize DeFi capital efficiency.

• Representative views: Tushar Jain and Vishal Kankani say that lowering inflation stimulates DeFi (SIMD-228 and Solana DeFi).

• Max Kaplan of Sol Strategies suggested that it would rather be roughly correct than accurately wrong, emphasizing the flexibility of market-driven mechanisms.

• Kamino co-founder Marius pointed out that pledges encourage hoarding and reduce financial activity, and support reducing inflation to enhance liquidity.

• Potential motivations: Shaping a market-driven and efficient network narrative that attracts more institutional investment, potentially having diversified investments in the ecosystem, and optimizing overall portfolio value.

• Position: Support, reduce inflation, reduce new supply, protect the value of its holdings, and enhance the attractiveness of the ecosystem through DeFi activities.

3.2 verifier

Large professional verifier

• Core benefits: Maintain network influence and optimize MEV withdrawals to compensate for reduced inflation gains.

• Characteristics: It has advanced MEV extraction technology, has significant voting rights, has an important impact on network governance, and is highly adaptable to changes in inflation.

• Representatives: Verifiers of exchange operations such as Binance and Kraken; institutional key verifiers, with an average inflation commission rate of 2.75%.

• Position: Support, MEV and transaction fees can make up for the reduction in revenue and maintain profitability.

Small and medium-sized verifiers

• Core benefits: Maintain economic feasibility and be sensitive to voting costs (approximately 2 SOL per round).

• Concern: Helius data shows that 34% of verifiers may withdraw due to the proposal; worried that the zero-commission competition will further deteriorate the economic situation, 49% of verifiers have zero commission rates and are less sensitive to changes in inflation.

• Representative: Chainflow and other validators who rely on the Solana Foundation Delegation Program (SFDP).

3.3 Developers and ecosystem builders

• Core benefits: Increased network activity, capital enters DeFi and application layers, and decentralized network maintenance.

• Differences of opinion:

• Proponents: They believe that the proposal will free up more capital into the application layer. For example, Anza’s Max Resnick (co-author of the proposal) emphasizes the leaky bucket effect and reduces tax losses (Solana’s SIMD-0228 Proposal Could Slash SOL Inflation to 0.87%).

• Concerns: Concerns about the possible impact of decentralization on the shrinking of the validator network, such as Leapfrog mentioned in a community discussion that it could trigger an inflation spiral (Six Questions and Answers: A Comprehensive Analysis of Solana’s Latest Proposal SIMD-0228 and Its Impact on the Industry).

• Representative: Helius (node service provider) provides neutral data analysis and emphasizes network health.

• Position: Complex, some people see DeFi’s growth potential, and others are worried about decentralization risks.

3.4 ordinary currency holder

active pledger

• Core interests: Stability of pledge income and sensitivity to tax impact.

• Impact: Under the high pledge scenario, the yield will decrease slightly but be more sustainable, for example, from 7.03% to 1.41%. The pledge strategy needs to be re-evaluated and may be concentrated on verifiers with strong MEV capabilities.

• Position: Oppose, reduction in earnings affects its investment return.

Non-pledged currency holder

• Core benefits: Reduce dilution, SOL price performance.

• Impact: Directly benefiting from lower inflation, prices may gain support when the leak barrel effect decreases.

• Position: Support, lower inflation protects the value of its currency.

2.5 Hidden game

MEV Infrastructure Controller

• Core benefits: As inflation incentives decrease, MEVs increase in importance, and controlling MEV extraction techniques brings more power.

• Representative: MEV optimization solution providers such as Jito, the entity that controls the block-wrapping algorithm.

• Position: Support, lower inflation makes MEV more critical and strengthens its market position.

Controller of governance voice

• Core interests: Influence the direction of future agreement upgrades and maintain influence on the ecosystem.

• Potential results: If the concentration of verifiers increases, governance decisions may be more centralized, and the core development team may have a closer relationship with large capital.

• Position: Support (if large verifiers), increased verifier concentration makes it easier to control network decisions.

Community controversy:

There is controversy in the community about IMD-0228, especially over its impact on small validators. David Grider’s lengthy tweet showed that 50,250 validators could be lost in different scenarios, which could lead to the risk of network decentralization and raise community concerns. The unexpected detail is that the exit of small validators could trigger a zero-commission race, further worsening their financial situation, while large validators could gain influence through MEVs.

Helius’s latest blog article also analyzes: The verifier economic model is challenged

Large professional verifiers: Potential winners of survival of the fittest. Large professional verifiers usually have the following advantages:

• Advanced MEV extraction technology can make up for the reduction in inflation gains

• Have sufficient capital and technical resources to adapt to the new environment

• Have a greater say in network governance

For this group, SIMD-0228 may be an opportunity to gain greater market share in the validator ecosystem. By optimizing MEV extraction and reducing operating costs, they are able to maintain or even increase profitability.

Small and medium-sized validators: Facing survival challenges In contrast, small and medium-sized validators face greater challenges:

• Generally lacking efficient MEV extraction capabilities

• More sensitive to voting costs (approximately 2 SOL per round)

• Being at a disadvantage in the zero-commission race

Small validators such as Chainflow have expressed concerns, saying that despite every effort to attract pledges, they still rely heavily on the SFDP delegation to continue operating.

Based on the validator economic model data:

• Among the 1316 validators, 647 (49%) have zero pledge reward commission rates, with limited impact from changes in inflation

• Under the high pledge rate scenario (70%), approximately 3.4% of verifiers are expected to withdraw due to unprofitable

• David Grider’s model shows that 50,250 validators may drop out under different scenarios

in summary

The game of interests in the IMD-0228 proposal reflects the complexity of the ecosystem. Large investors and institutions support, the validator group is divided (large support, small opposition), developers and ecosystem builders have complex positions, ordinary currency holders are divided (pledgers oppose, non-pledgers support), hidden power dynamics MEV controllers and governance influencers may support.

Yan Xiaobai explained: This is like a transformation in the retail industry: large chains (large verifiers) have the resources to invest in advanced technology and can survive through efficiency and scale advantages when profits fall; small independent stores (small verifiers) face greater pressure and may be forced to close down or be acquired. SIMD-0228 may cause approximately 40 55 small validators to drop out of the network because they cannot be profitable in the new environment.

4. Impact of SIMD-0228 on the verifier landscape

SIMD-0228 may have very different effects on different types of validators. According to Helius’s Verifier Economic Model:

• Among the 1316 validators, 647 (49%) have zero pledge reward commission rates, with limited impact from changes in inflation

• Under the high pledge rate scenario (70%), approximately 3.4% of verifiers are expected to withdraw due to unprofitable

• David Grider’s model shows that 50,250 validators may drop out under different scenarios

Such changes not only affect the economic feasibility of individual validators, but may also change the structure and competitive landscape of the entire validator ecosystem. The key question is: Are we willing to accept a reduction in the number of validators in exchange for a more efficient economic model?

Xiaobai explained: The survival game of the verifier

Imagine the Solana Network as a large factory and the verifier is the factory’s quality inspector. Now, factory management (network governance) is adjusting the reward mechanism:

Previously: Every inspector received a fixed salary

Now: Only the most efficient inspectors receive more rewards

Result? Some less efficient inspectors may be eliminated and the entire quality inspection process may become more refined, but the overall number of inspectors will be slightly reduced.

Key question: Are we willing to trade a slightly reduced number of inspectors for a more efficient and accurate system?

5. Will a decrease in pledge rates threaten network security? Find a balance between safety and efficiency

Pledge rate is one of the key indicators for evaluating PoS network security. Solana’s current pledge rate is approximately 65.7%, which is much higher than many other PoS networks. SIMD-0228 may cause this number to drop, raising concerns about cybersecurity.

Pledge Rate Prediction and Safety Threshold

Based on simulation data:

• At the market balance point, the pledge rate may drop from 65.7% to the 4555% range

• When the pledge rate drops to 33.3%, the inflation rate will be equal to the current fixed rate

• In the worst case scenario, the pledge rate may fall further, triggering a negative feedback loop

The key question is: What is the sufficient threshold for network security? Is it 33%, 40% or higher? This is still inconclusive in the community.

On the other side: The shift in security models

SIMD-0228 essentially represents a shift in the security model:

• Moving from overpaying to ensure safety to finding the minimum necessary payment”

• From fixed incentives to market-determined incentives”

• Moving from inflation-driven security to use value payment security”

This shift reflects Solana’s transition from its infancy to its maturity. As online activity and MEV gains increase, excessive inflation may no longer be necessary.

The figure below shows the relationship between pledge rate and network security.👇🏻As the pledge rate increases, attack costs increase and network security improves, but there is obvious diminishing returns.

SIMD-0228 is designed to maintain cybersecurity while improving capital efficiency: The SIMD-0228 proposal adjusts Solana pledge rates from current potentially excessive security areas to a more balanced range, while retaining an adequate margin of safety.

Xiao Xiaobai explained: Imagine a country’s military: Currently, 65.7% of the population is serving in the military, which far exceeds actual needs. The new proposal could reduce this figure to 45.55%, still enough to ensure security while freeing up more manpower to participate in economic activity. But if the ratio falls too low (below 33.3%), it may threaten national security. The key question is: Where is the critical point of safety?

6. How will the relationship between MEV and inflation change? Impact of shifts in revenue sources

As blockchain technology continues to mature, the role and importance of MEVs will continue to evolve. The key is how to balance the economic incentives brought by MEVs while maintaining network decentralization and efficiency.

As SIMD-0228 may reduce inflation rewards, MEV (maximum extractable value) will become a more important part of validator income. This shift may profoundly affect the transformation of the verifier’s revenue structure and the dynamics of Solana’s network.

Transformation of income structure

• Shift in focus in sources of income: Traditionally, the main source of income for verifiers is inflation incentives. But with the possible implementation of the SIMD-0228 proposal, MEV will gradually become a key component of validator revenue. This transformation reflects the profound evolution of the blockchain economic model.

• Rapid growth in MEV earnings: As can be seen from the data provided, this growth trend suggests that MEV has become an important source of income for verifiers, even exceeding inflation rewards in some quarters in 2024. MEV revenue for the full year of 2024 is approximately 3.7M SOL ($675M), and MEV revenue shows significant exponential growth.

impact analysis

• Inflation rate compression: Proposal SIMD-0228 is intended to reduce inflation incentives, which will directly lead to a reduction in the validator’s income through inflation. In contrast, MEV provides a fast-growing alternative source of income.

• Income diversification: The rapid growth of MEV means that the income structure of the verifier is undergoing fundamental changes: under the traditional inflation model, income is relatively stable and predictable, while under the MEV model, income is more dynamic and volatile, and the network changes dynamically.

• Network dynamics change: Growth in MEV revenue will have a series of far-reaching impacts: more market-oriented validator behavior, increased competition for block construction and transaction sequencing, and more complex incentive mechanisms for network participants

Potential risks and challenges

• Revenue uncertainty: Volatility in MEV earnings may: increase financial uncertainty for verifiers, lead to more aggressive network engagement strategies, potentially triggering new centralized risks

• Reshaping the economic incentive model of blockchain: The 2024 MEV yield (3.7M SOL) is close to 14% of new issuance under the current inflation rate, which means that MEV is becoming a source of income similar to inflation incentives. In the long run, it may reshape the economic incentive model of blockchain.

New risks for chain reactions of verifier behavior

This shift will lead to:

• Verifiers are more focused on optimizing MEV extraction technology

• MEV extraction capabilities become a key differentiator in verifier competitiveness

• Cybersecurity shifts from relying on inflation incentives to relying more on MEV benefits

However, this also brings new risks:

• MEV earnings are highly volatile, which may lead to unstable verifier income

• Verifiers may optimize MEV extraction instead of network security

• Reliance on MEV infrastructure may become a new centralized risk point

This transformation is not only a change in the economic model, but also a profound reconstruction of the cybersecurity incentive mechanism.

Yan Xiaobai explained: Imagine blockchain as a busy restaurant, and transactions are customers. Under the traditional model, waiters (validators) mainly rely on fixed wages (inflation rewards). Now, they can earn extra tips by providing better service (MEV).

In 2024, these tips will increase from the initial $42 million per quarter to $430 million in the fourth quarter! This means that validators are moving from passively waiting for salary to proactively creating value.

7. “How does the leaky bucket effect quietly erode the Solana ecosystem?

The author of the proposal emphasized that inflation has a leaky barrel effect and some of its value flows out of the ecosystem through channels such as taxation. This concept is one of the important reasons to support SIMD-0228.

Basic inflation data:

• Market value: $80B

• Annual inflation rate: 4.779%

• New issue value: $3.82B

Multiple channels for value loss

1. Tax channel: compliance costs

2. Central exchange commission

3. Overall value loss structure

• Tax channel: $650M (68%)

• Exchange commission: $305M (32%)

• Total loss: $955M (25%)

Intervention effect of SIMD-0228

Deep economic impact

1. Ecosystem capital retention

• Reduce external value extraction

• Enhance internal capital circulation

• Improve ecosystem autonomy

2. Restructuring of investor incentives

• Reduce selling pressure

• Attract long-term investors

• improve market expectations

3. Capital flow dynamics

• DeFi activity increased

• Increase in innovation funding pool

• Reinvestment of value within ecosystems

As Kamino co-founder Marius said: Pledges encourage hoarding and reduce financial activity are similar to the Federal Reserve raising interest rates and tightening financial conditions. rdquo; From this perspective, reducing inflation may enhance the overall vitality of the ecosystem.

The leaky barrel effect reveals a truth: the resilience of the economic system lies not only in the total amount of capital, but also in the efficiency and direction of capital flows.

SIMD-0228 represents a sophisticated, systematic economic intervention that marks a major evolution of Solana’s ecosystem governance model.

Xiao Xiaobai explained: The leaking bucket effect is Solana’s water-saving project. Imagine Solana like a large reservoir:

Past: Nearly $1 billion leaks out every year

Now: Reduce leaks to less than $200 million through sophisticated management

Effect: Preserve nearly $800 million in water for ecosystems”

8. Will low pledge rates cause systemic risks? Understand potential negative feedback cycles

Another major concern for SIMD-0228 is the negative feedback loop that can be triggered under conditions of low pledge rates, especially when pledge rates are significantly lower than current levels.

Potential negative feedback loop mechanism

In the worst case scenario, the following cycles may occur:

1. A low pledge rate (e.g. 30%) triggers an increase in inflation

2. Higher inflation increases selling pressure, causing prices to fall

3. Prices fall, verifiers ‘yields decrease, and some verifiers withdraw

4. The validator withdrawal pledge rate further declined

5. When the yield is below 3.5%, a penalty mechanism may be triggered to accelerate the withdrawal of pledges

Key considerations for system stability

This negative feedback loop is not just a theoretical model, but a substantial threat to Solana’s cybersecurity and ecosystem stability. The key challenges are:

• How to maintain network security in a low pledge rate environment

• How to design self-regulating economic incentive mechanisms

• How to prevent small-scale fluctuations from turning into systemic risks

mitigation strategies

To deal with this potential risk, the following countermeasures can be considered:

• Set up a smoother inflation adjustment mechanism

• Introduce dynamic pledge reward mechanism

• Establish an emergency buffer mechanism to protect network stability in extreme situations

• Strengthen community communication and enhance investor confidence

Resilience Comparison

It is worth noting that despite this risk, SIMD-0228 is designed to be more resilient than current fixed models:

• Provide higher yields when pledge rates are low and attract pledge returns

• As the pledge rate recovers, the inflation rate will automatically lower, forming a self-balancing mechanism

• The adjustment coefficient c (approximately equal to) in the formula is designed to make the curve more motivational at low pledge rates

This adaptive mechanism is one of the key advantages of SIMD-0228 over fixed models, although it still carries risks in extreme situations.

Yan Xiaobai explained: This is like a vicious cycle of economic recession:

When too many people withdraw money from the bank (low pledge rate)

Banks raise interest rates (inflation rises) to attract deposits;

But high interest rates hurt the economy, causing more people to withdraw money to cope with difficulties;

Banks were overwhelmed and partially closed; people panicked and more people withdrew money…

This cycle is difficult to break. Although SIMD-0228 has mechanisms designed to prevent this, it is still risky under extreme conditions.

8. Future Outlook: How will SIMD-0228 change the Solana ecosystem?

If SIMD-0228 is implemented, it could have a profound impact on the Solana ecosystem, from short-term adaptations to long-term structural changes.

Short-term adaptation period (0 6 months)

• The pledge rate gradually dropped from 65.7% to the range of 5055%

• Some small validators quit or were acquired

• SOL prices may gain support and market attention increases

• Verifiers begin to adapt their business models to the new environment

Interim adjustment period (6 18 months)

• Verifiers focus more on MEV extraction optimization

• New pledge pools and services emerge to help pledgers obtain MEVs

• DeFi activity increases and applications using unpledged SOL grow

• Implementation of voting cost reduction measures to help small verifiers survive

Long-term structural changes (18+ months)

• The validator industry structure is restructured and the degree of specialization is improved

• Cybersecurity models have shifted from relying mainly on inflation incentives to market-driven comprehensive incentives

• Solana’s economy shifts from inflation-driven to value-driven”

• May become a model of monetary policy innovation for other PoS networks

Yan Xiaobai explained: Imagine a country moving from a planned economy to a market economy: in the short term, there will be adjustment pains and some companies will close down; in the medium term, new business models and services will emerge; in the long run, the entire economic structure will be more efficient. SIMD-0228 may transform Solana from a network that relies mainly on printing money to a network that is mainly supported by actual use value, which represents a maturity.

These changes not only affect the technical and economic levels, but may also change the power structure and development trajectory of the entire ecosystem.

9. Conclusion: Assess SIMD-0228 from three dimensions

SIMD-0228 is not just a technical proposal, but a profound transformation of the Solana ecosystem in the economics, governance and technology dimensions. This proposal represents a major leap in the blockchain world from a simple inflation model to a complex market mechanism.

Economic dimension:

• Reduce unnecessary token issuance and avoid loss of value

• Adjust inflation rates through market mechanisms and optimize cybersecurity costs

• Free up capital into DeFi and improve overall capital efficiency

Governance dimensions:

• Reflects the ability of the Solana community to discuss complex economic models

• Find a balance between optimizing resources and maintaining network health

• Different stakeholders can express positions and influence decision-making

Technical dimension:

• Use mathematical models to adjust core economic parameters

• Design dynamic response mechanisms to adapt to network changes

• Provide new ideas for blockchain monetary policy

Key issues for the future

As SIMD-0228 is discussed and possible implementation, the following issues deserve our continued attention:

• Can the diversity of the verifier ecosystem be maintained?

• What new risks will increased reliance on MEV bring?

• Can market-driven mechanisms remain stable under extreme conditions?

• Can this model be learned from other blockchain networks?

Xiao Xiaobai explained: SIMD-0228 represents the evolution of the blockchain world from simple inflation rules to complex market mechanisms, just as modern central banks have replaced the simple gold standard. This is both a revolution (because it fundamentally changes the rules) and a natural evolution (because it reflects the actual needs of the network as it matures). Regardless of the outcome, this is an important experiment in blockchain economics.

In a sense, SIMD-0228 is both revolutionary and evolutionary. It represents a revolutionary shift in thinking and also reflects Solana’s natural transition from a start-up blockchain to a mature financial infrastructure. Regardless of the final outcome, this proposal and the extensive discussions it has sparked reflect the growing maturity of the blockchain community in economic design and governance.

10. Suggestion for action (if the proposal is adopted)

Ordinary SOL holders:

• If you mainly hold SOL rather than pledge, SIMD-0228 may be in your favor, and lowering inflation will help protect the value of your currency holdings

• If you are pledging SOL, consider reevaluating your pledging strategy and may need to find validators who can effectively extract MEV

• Pay close attention to the implementation progress of the proposal, especially the pledge rate and price changes

Verifier:

• Large Verifier: Invest in MEV optimization technology and prepare to adapt to new revenue structures

• Small validators: Assess economic feasibility and consider specialization strategies or differentiated services

• All validators: Focus on progress on voting cost reduction measures, which could have a significant impact on economic models

Developer:

• Be prepared to take advantage of possible capital liquidity released

• Consider developing tools to help pledgers participate in MEV revenue distribution

• Explore new application scenarios for more efficient use of SOL in DeFi

Xiao Xiaobai explained: Whether you are a SOL holder, validator or developer, you should be prepared for the changes that SIMD-0228 may bring based on your role. Ordinary holders should pay attention to the progress of the proposal; validators need to adjust their business models; and developers can look for new opportunities. As with any economic policy change, those who prepare in advance usually benefit from the change.

Final thinking

SIMD-0228 represents an important turning point as Solana is moving towards a more mature and market-oriented economic model.

By introducing a dynamic inflation mechanism, it attempts to build a more efficient and sustainable ecosystem that ensures cybersecurity while maximizing capital efficiency.

Like any major change, it brings both opportunities and challenges, with both supporters and opponents. By understanding the motivations, mechanisms and potential impacts behind the proposal, we can better prepare for this change and find our place in the new economic environment.

Regardless of the final outcome, the discussion process of SIMD-0228 itself has demonstrated the blockchain community’s ability to solve complex economic problems through collective wisdom, which may be a truly revolutionary aspect of blockchain technology.

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