Solana validators clash over ‘SIMD-0228’ inflation proposal – Here’s why

• Solana insiders were divided ahead of voting on SIMD-0228 inflation proposal. 
• The proposal could reduce inflation by 80% but slash staking rewards by 70-80%. 

A section of Solana [SOL] validators and ecosystem insiders have opposed the inflation proposal (SIMD-0228) in its current form as voting nears.

The proposal, floated by VC firm MultiCoin Capital, aimed to reduce SOL’s emissions while avoiding overpaying for network security. 

This would change the current fixed SOL emission schedule to a dynamic one. However, one of the validators, SolBlaze, claimed that the proposal would ‘attack network security.’

“SIMD-0228 will cause the amount of SOL staked on the network to drastically decrease, from 63% of the supply to 42%. Under a Proof of Stake model, more stake means higher network security. SIMD-0228 directly attacks network security.” 

The validator added that, if implemented, the staking yield would drop by 70-80%, triggering unstaking as investors look elsewhere for better returns. 

Currently, 390 million SOL has been staked (about 63% of the overall supply), with staking rewards (yield) at 8%.

These rewards could drop to 1.34% if the proposal is adopted. On the positive side, it could also reduce inflation by 70%-80% and benefit SOL’s value. 

Institutions vs. Solana validators

For her part, Lily Liu, President of the Solana Foundation, also opposed passing the proposal in its current form. She feared it would affect SOL’s value. 

“228 is too, too half-baked…Changing network parameters can be good for network security, and bad for the asset, or vice versa. We need to take a system-wide view on major changes.”

Liu urged extending the proposal timeline for a more ‘holistic’ review. 

BitGo CEO, Mike Belshe echoed Liu’s sentiment and noted that large players would reduce exposure if the proposal goes through. 

“I believe large holders will significantly reduce exposure. Solana has built a strong reputation and is trusted. Be careful with this change.” 

However, other top VCs were fully behind the change. According to Chris Burniske, ex-ARK Invest Crypto Lead and VC partner at Placeholder said, 

“I’m in favor of SIMD-228. In the long run, real yield comes from what the demand-side leaks to the supply-side, and inflation is just a bootstrapping mechanism to get to that place.”

He added,

“I see SIMD-228 as a step in the right direction, in line with Solana’s stage of maturity.” 

In response to strong criticism, Vishal Kankani, partner at MultiCoin Capital, noted that most of the feedback was factored in.

He added that the proposal would be gradually implemented in phases.

“The result of this process is that we have arrived at a much more robust emissions curve.”

Voting for the proposal will begin in epoch 753, around the 9th or 10th of March.

It remains to be seen how the outcome of the voting process will impact the ecosystem and SOL’s value. At press time, SOL was valued at $143, down 51% from a record high of $295.